Companies to press for sale and purchase of bad debts

Companies to press for sale and purchase of bad debts

Establishment of debt purchase-and-sale companies was an effective way to manage bad debts, a conference in Ha Noi was told yesterday.

Handling bad debts associated with corporate finance restructuring was an urgent problem, the conference heard.

There was no exact figure on bad debts, the State Bank of Viet Nam (SBV) figures showed the country's total bad debts was VND202 trillion (US$9.6 billion), accounting for 8.6 per cent of total outstanding credit, while the National Financial Supervision Committee calculated the figure at 11.8 per cent, equivalent to VND207 trillion ($9.85 billion).

However, Fitch Ratings calculated the bad debt rate at 13 per cent.

Vu Nhu Thang, head of the Finance Ministry's Institute for Finance Strategy and Policies, said the debt rate showed an increasing trend to nearly double-digit level, though it was lower than other countries in the region. For example, the rate in South Korea was 17 per cent; Thailand, 47.7 per cent; Malaysia, 11.4 per cent ; and Indonesia, 50 per cent.

Pham Huu Hong Thai, vice rector of Finance and Marketing University, said there were several State and private capital prototypes for debt purchase-and-sale companies.

"If no-one buys the debts in the financial market, the company would be able to buy them," Thai said.

"In addition, if the Government bought bank bad debts through a debt purchase-and-sale company, it could impose conditions to help a bank restructure their finance and operation," he said.

Private debt purchase companies would be more flexible in management than State-owned ones.

If a company was under bank management, debt restructuring would be easier as the bank would have the customer's debt documents, participants said.

But they pointed out a bank could use the companies to hide their bad debts.

Economist Ngo Tri Long said evaluation of debts was extremely important and would ensure benefits for both buyers and sellers.

He said debt should be settled by a combination of debt purchase-and-sale companies, banks and businesses. As bad debts in Viet Nam often were related to mortgages, the debt-purchase companies would buy the debts and mortgage assets from banks at a value that avoided risks.

"The evaluation was usually equal to 50 to 80 per cent of mortgage asset value," he said. "However, its value depend much on the time of buying the debt and the macroeconomic situation."

Bad debts in Viet Nam had been often settled by auction or sale to other credit institutions or debt purchase companies.

Meanwhile, the Prime Minister has approved a restructuring of the credit institution system by 2015 with the aim of settling bad debts by 2015.

Since 2007, Viet Nam has a Debt and Asset Trading Corporation (DATC), which operates under the Finance Ministry to settle bad debts.

Conference participants raised questions on whether the establishment of debt purchase-and-sale companies could be effective while DATC existed.

Truong Dinh Tuyen, a member of the Advisory Council for National Monetary Policies, supported the establishment of debt purchase-and-sale companies or an upgraded DATC with special rights to settle debts.

Pham Manh Thuong, DATC's deputy director, said the company had faced difficulties to buy debts as banks had not transferred the debts to DATC.

Also, DATC did not have the financial resources to restructure debt-ridden businesses.

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