New measures in force to accelerate handling of bad debts

Successful handling of bad debts and collaterals will create a major source of capital for the economy

The results of the second quarter of 2017 recently announced by commercial banks show that most successfully curbed the bad debt ratio at below three percent as stipulated by the State Bank of Vietnam (SBV). Since it commenced operations, VAMC has purchased bad debts totaling approximately VND290 trillion and handled nearly VND60 trillion. In the first half of this year, VAMC coordinated with credit institutions and reclaimed nearly VND8 trillion, exceeding its projections.

However, the banking sector requires coordination with other sectors and ministries to speed up the treatment of non-performing loans in accordance with the spirit of NA Resolution 42. At a recent meeting held to promote the restructuring of people’s credit funds in conjunction with the treatment of bad debts in Hanoi, SBV’s Hanoi Branch Director Nguyen Minh Tuan said Resolution 42 creates favorable conditions for the banking sector to restructure and handle bad debts.

Nonetheless, a large amount of collaterals remains to be handled. Successful handling of bad debts and collaterals will create a major source of capital and enable the reduction of lending interest rates.

Representatives of commercial banks indicated some problems facing the handling of bad debts. Specifically, the existing Land Law allows credit institutions to accept land use rights as collaterals but not land assets.

Therefore, to ensure successful implementation of the NA resolution, SBV, ministries and sectors need to maintain tighter coordination in dealing with matters related to credit institutions and issue guiding documents.

According to VAMC Chairman Nguyen Tien Dong, Resolution 42 has basically removed problems facing the settlement of bad debts, strengthening creditor rights and creating an open legal corridor for VAMC and credit institutions in handling bad debts. The stipulation that allows VAMC and credit institutions to purchase/sell bad debts at prices lower than their book value will enable the treatment of bad debts according to market mechanisms. The debt market is expected to become more vibrant when VAMC is allowed to sell debts to any businesses that have demand.

VAMC has been assigned to purchase and handle bad debts totaling about VND1 trillion in 2017, but the company is trying to achieve a double or even triple result. Nguyen Tien Dong said VAMC has established four working teams to assess and classify each debt of credit institutions, concentrating on analyzing major debts, from VND30 billion upwards. So far, they have classified more than 1,000 debts.