Banks’ settlement of debts hindered by asset regulations
Banks’ settlement of debts hindered by asset regulations
The regulation that banks cannot sell mortgaged assets below face value is the biggest barrier hindering debt settlement.
Nguyen Quoc Hung, chair of the Vietnam Asset Management Company (VAMC), an arm of the State Bank in charge of buying debts from banks to help liberalize banks from bad debts, said VAMC bought VND11.414 trillion worth of principal in the first half of the year and has bought VND50.721 trillion ($2.4 billion) worth of debts so far.
Meanwhile, it has only settled VND996 billion worth of debts, which accounts for less than two percent of the total VND51 trillion it has bought.
A banking expert noted that VAMC now “has too many things to sell but doesn’t know whom to sell to”.
As Vietnam still does not have a debt market, buyers and sellers cannot meet each other, while foreign investors cannot buy debts, though they have demand for Vietnamese debts.
Former governor of the State Bank Cao Si Kiem said the “debt settlement is at a standstill. The bad debts can only be settled when we solve the problems related to the mortgaged assets.”
“Meanwhile, we still cannot sell debts. VAMC buys debts and keep them. The debts have just left banks’ coffers and then are put into VAMC’s coffers. Nothing has been gained”.
The banking expert noted that with the current regulations, the debt settlement process cannot proceed.
“The problem is that banks’ leaders dare not sell debts at low prices because they fear they would have to take responsibility for this,” he noted.
Risks always exist in business, which is the reason why banks have to make provisions against risks when providing loans.
“In principle, if banks have made provisions against risks for the loans, they have the right to sell debts, even if they have to sell at a loss. It is the banks’ business,” he explained. “However, banks now seem not to have that right”.
The expert said there are too many existing rules that bar banks’ steps.
“Even if banks take legal proceedings against debtors, they would have to spend nearly 10 years to eliminate a bad debt item out of their portfolio,” he said. “VietinBank, for example, still has not completed the settlement of many debt items after 10 years of dealing with them”.
Dr. Tran Du Lich, a member of the National Advisory Council for Monetary Policies, also thinks that the confusing legal documents make it difficult for banks to settle bad debts.
“Under the current laws, creditors don’t have the right to seize mortgaged assets. In case the mortgaged assets are houses, banks can only seize the houses after they lease other accommodations for debtors to live in. It is quite unreasonable,” Lich said.
He also repeatedly said that the VND500 billion worth of chartered capital VAMC has is not enough to settle debts.
vietnamnet
