Clearing bad debts

14:02 | 09/06/2014 Economy

(VEN) - The government has implemented overall measures based on Decision 780 on dealing with bad debts and introduced the Vietnam Asset Management Company (VAMC) in order to execute the mission.

The majority of bad debts lay in the real estate sector - Photo: Can Dung

After a short time of preparation and assessment, VAMC made deals with credit organizations to purchase more than VND39 trillion in bad debts at the end of 2013. Since the beginning months of this year, it has shown a sign of slowing down. According to statistics, in the first five months of this year, VAMC just purchased VND6.3 trillion in bad debts, bringing a total value to more than VND45 trillion. However, VAMC and new banks just handled and withdrew several hundreds of billions of Vietnam dong. It was a low figure and not commensurate with expectations. VAMC’s goal in 2014 is to purchase about VND70-100 trillion in bad debts.

VAMC Deputy Chairman Nguyen Quoc Hung said that it remained difficult to determine the prices of bad debts. The company has purchased bad debts at high prices while meeting difficulties related to collateral.

Nguyen Quoc Hung also added that since the beginning months of this year, VAMC has planned to establish a department in handling and restructuring bad debts in order to create favorable conditions for businesses to ask for new loans. In addition, many foreign investors are likely to purchase Vietnamese bad debts. However, it remains difficult to determine the prices of such bad debts.

In order to deal with bad debts, the most important thing is to establish a debt sale and purchase market. If the market is established, foreign investors will be important partners.

Member of the National Assembly Economic Committee Dr. Tran Hoang Ngan said that the majority of bad debts lay in the real estate sector. To withdraw bad debts, the real estate market must be warm up. He also added that the aggregate demand in the economy remained weak. Therefore, it must increase to ensure the quick resolution of bad debts.

Vietnam International Arbitration Center (VIAC) Arbitrator Truong Thanh Duc said that it was necessary to determine bad debts as unmarketable products. Therefore, companies must accept losses to ensure quick resolution. In addition, in the context of current economic difficulties, bad debts are greatly dependent on foreign investors. Therefore, the state needs to adopt right mechanisms and proper prices.

In addition to correcting the value, multiple debts need to be transferred back to banks in order to recalculate the prices, contributing to providing optimal solutions. Almost all bad debts are secured by real estate projects. Project owners are often debtors who lack the money to continue while creditors are banks who could not give more loans and lack experience in project management. The unfinished projects are often cheap and find it hard to find a buyer. Therefore, the two sides should work together in order to complete the project or sell the project to experienced developers in the real estate sector.

“According to Decree 53/2013/ND-CP, unsold bad debts will be handed back to banks in five years. Therefore, the state needs to adopt the right mechanisms and policies to ensure that unsold bad debts don’t return,” Truong Thanh Duc said.

The State Bank of Vietnam issued Circular 04 which took effect from June 1, 2014. According to a circular, VAMC must publicize information in terms of their activities in asset and debt valuation. VAMC statistics must be timely, honest, objective and accurate.

According to foreign financiers, Vietnam needs to resolutely deal with bad debts if the state wants to restructure commercial banks. In addition, the State Bank of Vietnam needs to adopt mechanisms and policies to impose fines on commercial banks that have not made a complete bad debt report. In particular, management policies must be drastic./.

By Thu Hang