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From August 15, 2017 to August 31, 2019, the banking system handles about VND9.6 trillion of bad debt on average each month. Photo: S.T.

Dealing with VND9.6 trillion of bad debt each month

National Assembly Resolution No. 42/2017 / QH14 on piloting the handling of bad debts of credit institutions (Resolution 42), effective from August 15, 2017, is an important legal basis for dealing with bad debts. The resolution has removed many obstacles in dealing with bad debts, while increasing autonomy for banks and raising the awareness of debt payers. Besides, a series of guidelines by the Government, the State Bank (SBV), the Ministry of Finance, the Ministry of Justice, and the Supreme People's Court have been issued to help the resolution come into practice. According to experts, the legal corridor for dealing with bad debts is relatively complete, closer to the common regulations commonly found in countries with developed legal systems.

Reporting on the results after two years of handling bad debts under Resolution 42, Mr. Nguyen Van Du, acting Chief of Inspection and Supervision of the State Bank, said that the bad debt ratio in the balance sheet (according to Circular No. 02) of the system of credit institutions continues to be maintained below 2 percent (as of August 31, 2019 it is 1.98 percent). Accumulated from August 15, 2017 (the time when Resolution 42 took effect) to August 31, 2019, the whole CI system has handled VND236.8 trillion of bad debts determined under Resolution No. 42. Calculated on average, from August 15, 2017 to August 31, 2019, the whole system handled about VND9.6 trillion per month, VND4.7 trillion higher than the average of bad debt before the resolution.

Mr. Pham Quang Dung, General Director of Vietcombank, said that Resolution 42 has cleared the "bottlenecks" of the economy, increasing resources for economic development. Over the past two years, Vietcombank's bad debt handling has increased significantly. In previous years, Vietcombank normally collected from VND1,500-2,000 billion of off-balance sheet debt, but the last two years has increased significantly. In 2018, off-balance sheet debt collection reached VND3,200 billion, while this year it is expected to be higher.

Similarly, at Agribank, Mr. Pham Toan Vuong, Deputy General Director of Agribank, said that customers are more responsible and aware of debt repayment. Of the more than VND 140,000 billion of debt that needs to be dealt with, in the past 2 years, Agribank has recovered VND 110,000 billion, of which customer recovery is about VND 60,000 billion. In addition, many barriers have been removed, including allowing credit institutions to handle debt recovery below the cost price, sell debt at market prices, and the recovery mechanism is prioritized to pay and recover the principal first.

Many obstacles

One of the problems in dealing with bad debts mentioned by banks is related to tax. Mr. Pham Toan Vuong said that there are many assets that ensure Agribank makes auctions successful, but some tax agencies and localities apply in a different way, leading to the time that the recovered assets are extended, causing damage to purchasers due to their inability to convert or transfer their names to continue using properties in service of production and business. Typically, the Thanh Liem cement project, which is deferred to 20 years, but when the auction is successful, the tax authority requires an immediate payment of VND40 billion even though the bank has written a request for tax exemption, reduction or extension.

Vietcombank's leaders expressed their wish that in the future, the General Department of Taxation will provide specific documents to guide the tax department to implement the principles set out in Resolution 42. There are still some local tax departments which have different applications such as: requesting businesses to complete all tax obligations before completing the procedures related to land use right, transfer property rights, while Resolution 42 states that the principle is the priority to pay secured debt obligations of the CI when there are collateral assets related to the cases.

Another problem that also makes the dealing with bad debts difficult is the sudden appearance of disputes when banks seize collateral. As a recent case at Agribank’s Ho Chi Minh City branch, a borrower has mortgaged a project in Binh Duong since 2000. After 10 years of unsolvable customers agreed to cooperate with the bank to implement property auction, the bank and this customer had 13 auctions to sell bad debt, however, the customer said the auction was against the regulations and sue the bank, causing the execution of the sentence to be suspended. Although this case has been inspected and concluded by the Ministry of Justice in accordance with the auction process, the Prime Minister has issued a written direction. At present, the People's Court has accepted and not allowed to transfer or cause damage to the bank because the transaction could not be performed.

Also at Agribank, Mr. Pham Toan Vuong said that the application of simplified procedures in the court has not been implemented. Agribank has more than VND100,000 billion of bad debt from 1 million customers that need to be handled under Resolution 42, including nearly 7,000 disputes arising through civil courts. But according to the representative of Agribank, over the past 2 years, there have been more than 10 cases and no case has applied for simplified procedures at the court, the remainder has been instructed by the court to apply normal procedure.

Clearly, the above problems show that the process of dealing with bad debts and the implementation of tasks related to handling of bad debts are still stuck due to different understanding in each agency and locality. But this is easy to understand because "bad debt" is always a very sensitive issue, making the relevant organizations deal with it carefully. Vietcombank's general director said that prudence in the handling of bad debts is necessary, so when the regulations go into practice, there should also be "latency" for the management agencies to perform smoothly and systematically.

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From the problems mentioned above, according to financial experts, in order to perform the process of handling bad debts and the implementation of Resolution 42 more effectively, meeting the requirements; local authorities and management agencies need to be quick and proactive to solve the problems. But the most critical issue is the debt trading market; the authorities need to build a complete market for debt trading activities to be public, transparent and vibrant. These solutions will help to deal with bad debts easily.