Dealing with bad debts after one year of Resolution 42

Need to establish early the debt trading floor to promote the effective disposal of bad debt. Source: Internet.

Bad debt of less than 3%

The bad debt treatment by the banking system started in 2013, together with the establishment of VAMC - Asset Management Company of Vietnam Credit Institutions, and at that time, bad debt at Vietnam’s credit institutions had reached an alarming level. So far, after 5 years of treatment, the bad debt ratio of the whole banking industry has been reduced to less than 3%. Through VAMC's issuance of special bonds as well as debt market valuation, the bad debt ratio of the entire banking sector has fallen from 3.61% at the end of 2013, to 2.18% today. In particular, bad debts processed through VAMC to 30/6/2018 reached 310,517 billion VND according to outstanding loans, estimated at over 40% of total bad debts to be treated. VAMC also cooperated with credit organizations to recover nearly 100 trillion VND.

Especially, the results of handling bad debts by the banking system mentioned above contributed to the National Assembly Resolution No. 42/2017/QH14 on piloting bad debts of credit institutions. This resolution allowed the application of many new policies in comparison with the current law on the handling of bad debts and security assets, creating a more favorable legal basis for handling and financial losses, assurance of credit institutions, foreign bank branches, bad debt buying and selling organizations, contributing to the handling of bad debts in the credit institutions’ system.

In the year 2017, thanks to the issuance of Resolution 42, VAMC has collected 30,852 billion VND; this figure is nearly two thirds of the total debt recovery value of the previous four years, an increase of nearly 2,000 billion VND by 2016, completing 140% of the assigned plan.

According to VAMC’s report, the company has also purchased debt at market value with the total purchase price of over 3,100 billion. As for the debt at the market price, after the purchase of debt, the VAMC immediately implemented debt resolution solutions, supported the completion of legal procedures related to the transfer of the project... Drastically implementing solutions to help the VAMC Corporation recover the basic amount of debt at market price, reaching more than 2,900 billion VND corresponding to more than 90% of the total purchase price of debt purchased at the market price in 2017.

According to Mr. Doan Van Thang, General Director of VAMC, the handling of bad debts through buying and selling debt at market price helps to handle the debts more effectively on the principle of preserving and guaranteeing capital effectively, and at the same time demonstrating a positive effect in the implementation of the policy of limiting the use of budget capital to deal with bad debts by the Government.

According to VAMC's report, VAMC has signed a cooperation agreement with some credit institutions with a large bad debt balance, especially strong measures such as the seizure of security assets. By 30/6/2018, VAMC has seized 6 security assets to handle debt recovery.

Notably, in recent years, some banks have boldly bought bad debt that was sold to VAMC to handle themselves. Typically, Vietcombank, VIB. In 2016, Vietcombank bought a total of 4,300 billion VND of bad debt from VAMC to actively handle. With VIB, the bank has now settled all bad debts purchased from VAMC.

Problems arise

One year after the effective date of Resolution 422, with many results, many problems have arisen requiring the handling of bad debts to be further studied and adjusted to meet practical needs.

Sharing at a conference on dealing with bad debt that was organized by the State Bank, Mr. Tran Van Du, Deputy General Director of Agribank, said that although Resolution 42 has authorized the bank to seize assets, but in fact, the local government has not been strong. Representatives of Agribank said that in many cases, families have only have one house to mortgage to the bank to get business capital, but unfortunately some businesses suffered losses, so according to the law, the house was indebted to the bank. However, if the assets are decisively seized, the bank will be condemned for pushing people into unplanned housing. Therefore, it is difficult to deal with these cases in a sensible manner.

Assuming Resolution 42 re-establishes the right to seize assets secured by the secured party, however, representatives of Vietcombank said when the customer deliberately objected, the credit institutions then have to sue through the competency of the People's Court for the right to handle secured property through the execution of judgments. Accordingly, credit institutions will only seize assets that ensure success in certain cases, such as the customer has fled from the locality where the collateral is not dispute; this invisible medium also limited the handling of collateral assets of credit institutions. In addition, functional agencies such as the People's Committee, the police office... in some localities are psychologically anxious, do not really want to coordinate, participate in supporting credit institutions to seize guaranteed assets.

In the long run, in order to effectively deal with bad debts, it is necessary to form a real debt trading floor with the participation of many participants rather than just a few enterprises operating in this field like nowadays. In fact, Resolution 42 also allowed the sale of bad debt, collateral assets of marketable bad debts, and the expansion of the market participants for bad debts, including entities and individuals who do not have the function of trading debt. VAMC itself has started to buy debt at market prices.

In this regard, Mr. Nguyen Tien Dong, Chairman of VAMC said that it is expected in 2018 and in following years, the VAMC will gradually reduce the purchase of bad debt by issuing special bonds, gradually switch to purchasing form in accordance with the market mechanism.

VAMC is deploying debt trading software on the market based on supplementing information, building data systems on bad debt. This is the basis for forming a market for bad debts in the future as well as a solution to utilize the external resources of both the domestic and foreign sectors involved in bad debt trading and restructuring businesses and bad debts etc. Besides, VAMC also deployed and successfully auctioned some debts, some security assets. Thus, some initial steps to establish a debt trading market have been made. However, for this market to be officially established, put into operation and operating effectively, there are many tasks to do with the entry of many ministries.