Experts mull over banks' bad debt problems
Experts mull over banks' bad debt problems
Senior economists have outlined several ways to pump more money into the economy by settling banks' bad debt.
Although the banking sector has had negative credit growth in the first four months of the year, commercial banks are still reluctant to lend because of fear of more bad debt.
According to the National Financial Supervisory Committee, the banking sector's bad-debt ratio last year reached 3.3 per cent of all outstanding loans, compared to the 2010 figure of 2.14 per cent.
Commercial banks have also said that bad debt rose during the first quarter of the year because many companies could not make payments due to the prolonged recession.
Vietcombank's bad debt, for instance, increased from 2.03 per cent earlier the year to 2.87 per cent by March.
The bank's credit growth fell by 0.6 per cent compared with the last quarter of 2011.
In addition, Vietinbank's bad debt also rose to 1.85 per cent from 0.75 per cent in the first quarter of the year. Its credit growth dropped by 2.6 per cent.
Dr. Le Xuan Nghia, a senior economic expert, said the central bank had asked banks to support enterprises by re-scheduling loan terms.
However, he said that banks were also businesses and must ensure that they have profits. Many of them are also coping with a rising number of defaulted loans.
Because credit has been nearly frozen, businesses, and in turn, the economy, have suffered.
Banks can increase their lending only when the majority of the bad debt is settled, according to Nghia.
Dr. Tran Du Lich, a member of the National Advisory Council on Monetary and Financial Policies, also agreed with Nghia, saying that settling the bad debt problem would help raise credit growth.
If bad debt is not settled, the target of achieving credit growth of 17 per cent by the year-end cannot be met. The State Bank of Viet Nam recently issued document No 2871/NHNN-TD that asks 14 credit institutions to implement debt-settlement measures based on the Government's current regulations, and purchase and sell debts according to Decision No 29/2006/NHNN.
The affected banks include Agribank, BIDV, VietinBank, Vietcombank, ACB, Sacombank, Eximbank, Techcombank, MB, MaritimeBank, VPBank, VIB, SeAbank and SHB.
The central bank's new policy is expected to accelerate bad-debt settlement through debt purchases and sales among banks.
Under this document, commercial banks are encouraged to buy debt from each other. The central bank would be responsible for settling bad debt that commercial banks are unable to sell.
Experts, however, have said that, with their current financial capacity, even strong commercial banks would have to make great efforts in settling their own bad debt before buying the bad debt of other banks. So, this solution appears to be infeasible.
To settle bad debt, Nghia said that Government bonds could be issued to buy bad debt. However, he said that to ensure effectiveness, the bond-issuance process must be well-organised.
The Viet Nam Debt and Asset Trading Corporation is the only company that specialises in debt purchase and sale.
But this company has certain limitations in capital and labour resources, and would not be able to settle all bad debt.
The branch of the State Bank of Viet Nam in HCM City has proposed that the Government set up a company specialising in purchase and sale of bad debt of credit institutions.
Under this proposal, the company would help banks settle bad debt, and encourage them to pump more money into enterprises.
The central bank should purchase major bad debt, and then when the banks have an opportunity, they can sell them, according to economist Vo Tri Thanh. "Viet Nam had success when applying this method in 2001 and 2002," Thanh told the Dau Tu (Investment) newspaper.
Another economist Nguyen Tri Hieu said that if the central bank purchased major bad debt of commercial banks, it would become a shareholder of the banks.
This would create confidence for investors, and encourage them to pour more money into banks.
If the central bank helps commercial banks settle bad debt by purchasing dead loans, it would, in effect, be injecting capita in order to save small banks, according to Can Van Luc, another economics expert.
One director of a commercial bank in HCM City agreed with this measure, saying that if the central bank bought bad debt, commercial banks would not have to spend much time collecting and settling bad debt and would thus pay more attention to business activities, particularly credit activities.
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