Bad debt settlement becomes urgent priority in new context

Bad debt settlement becomes urgent priority in new context

A view of the forum. When bad debt increases, banks are forced to make larger provisions, thereby reducing lending capacity and driving up the cost of capital. —Photo thitruongtaichinhtiente.vn

As Việt Nam is entering a stage of accelerating economic growth, the settlement and recovery of non-performing loans (NPLs) has become an urgent priority to ensure the capital supply for the economy, experts said at an event held on April 15.

Speaking at a forum on NPLs in the new context, Nguyễn Quốc Hùng, general secretary of the Vietnam Banks Association, said that NPLs were not just a problem for the banking sector but also directly impacted the ability to supply capital to the entire economy.

The NPL ratio was currently at around 2.8 per cent. When bad debts increased, banks were forced to make larger provisions, thereby reducing lending capacity and driving up the cost of capital, Hùng explained.

“If this capital source is put into circulation, economic benefits will be enormous. This will not only help reduce costs for credit institutions, but also bring capital back into circulation, support business development, and promote economic growth,” he said.

According to Hùng, in the current context of global uncertainties, bad debts have tended to increase both in scale and complexity as enterprises face difficulties in production, consumption and cash flow, which causes a decline in their solvency.

International experience shows that a developed debt trading market helps to diversify risk, increase liquidity, and accelerate the process of resolving NPLs.

Dr. Cấn Văn Lực, chief economist of BIDV and a member of the National Financial and Monetary Policy Advisory Council, told the event that it was necessary to allow debt trading at market prices, even below book value, to promote transactions and capital flow.

Besides, Lực said, it was necessary to develop tools such as debt securitisation and build a specialised trading exchange.

In addition, improving institutions, expanding the rights of participating entities, increasing information transparency, and developing a secondary market were key factors in dealing with bad debts.

“Without strong reforms, the pressure of NPLs will continue to increase and affect the safety of the financial system,” Lực warned. 

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