Law needed to handle rising bad debts

06:00 | 06/08/2021 Economy

(VEN) - The Vietnam Banks Association has warned commercial banks about rising bad debts and loans due to the resurgence of Covid-19.

law needed to handle rising bad debts
Bad debts are at high risk

Auctioning off collateral assets

A number of commercial banks have announced plans to auction off their collateral assets in an attempt to speed up bad debt recovery.

The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) announced the sixth auction of the debt of the Archplus Architecture and Construction Joint Stock Company. The debt arises from bond investment by the company at BIDV, including total principal balance, interest and fees at the time of signing the debt auction service contract. Total debt principal and interest as of April 15, 2021 reached nearly VND500 billion. The reserve price of the debt was nearly VND300 billion. BIDV also announced the 41st auction of assets of the Thuy Dat Joint Stock Company, including machinery and equipment, with the starting price of more than VND6.3 billion.

The Vietnam Bank for Agriculture and Rural Development (Agribank) announced the auction of all debts of the Song Hau Farm in Can Tho City. The book value of the debt as of March 30 reached more than VND348 billion, including over VND96 billion in total debt principal. The starting price of the debt has significantly declined since the end of April, now reaching over VND228 billion.

The massive selling of debts by banks shows that bad debt settlement is being urgently implemented to complete the restructuring process.

Dr. Can Van Luc, chief economist of BIDV, said the sale of collateral assets did not succeed due to the difficulties facing the economy and low liquidity in the asset trading market. In addition, the regulations do not allow significant discounts, so price reductions are limited.

Law on debt settlement needed

The resurgence of Covid-19 has negatively affected trade and production activities and reduced debt repayment capacity of businesses and individuals.

According to data of the BOS Securities Joint Stock Company, the total value of bad debts of listed banks reached VND91.244 trillion by the end of the first quarter, an increase of VND3.948 trillion compared to the end of 2020. The ratio of bad debts to total outstanding loans also increased by 0.02 percentage points to 1.41 percent.

Nguyen Quoc Hung, secretary-general of the Vietnam Banks Association, said bad debts are at high risk due to the resurgence of Covid-19 in Vietnam and similar developments in other countries.

Hung said positive profit figures in the first quarter of the year did not accurately reflect banks’ financial health because some of them have not yet made adequate provisions for potential bad debts.

Resolution 42/2017/QH14, effective on August 15, 2017, has a profound impact on banks and organizations, providing effective mechanisms to help credit institutions speed up the bad debt settlement process. However, it expires in August 2022.

In the long term, a law on bad debt settlement is needed to help the banking system and relevant state management agencies deal with bad debts more effectively, Can Van Luc said.

Between August 15, 2017 and April 30, 2021, the whole banking system handled VND350 trillion worth of bad debts, equivalent to 66 percent of the total, under Resolution 42/2017/QH14.

Hoang Lan