A step towards bad debt settlement
(VOV) - The Prime Minister has decided to establish the Vietnam Asset Management Company (VAMC) in an effort to settle bad debts that are hampering banking and business operations.
Under a decision signed on May 21, VAMC will operate in the second quarter of 2013 in the form of a wholly State owned single member limited liability company and under the supervision of the State Bank of Vietnam (SBV).
The company will issue special bonds to purchase debts from credit organisations. Businesses that owe banks are allowed to access new loans after selling their debts to VAMC.
Bad debt is considered the biggest obstacle to banking and business operations. Businesses cannot access new loans unless they pay back their debts. Meanwhile, banks find it difficult to disburse their huge deposits despite subsequent interest rate cuts.
In a report presented at the ongoing National Assembly session, the government said the bad debt ratio has decreased considerably to 7.6 percent.
However, former SBV governor Cao Si Kiem told the media on May 21 that the rate remains high, and if the issue is not addressed immediately, it will be a bottleneck in credit disbursement.
According to Kiem, VAMC cannot shoulder the burden alone, and the ball is still in banks’ and businesses’ court.
“Bad debt will be run up again if it is not settled within five years,” he warned. “The crux of the matter is addressing the quality and health of businesses. Inefficient businesses will be eliminated from the market.”
Economic expert Dr Nguyen Tri Hieu noted that bad debt is a thorny problem for interest rate adjustments.
* Interest rates unlikely to drop further
* Banks and businesses need mutual trust
* Bad debt resettlement - key to bank restructuring
“The current widening gap between deposit and lending interest rates is the result of bad debt. If the matter is not tackled completely, banks will have to put their invisible fund on hold that eventually widens the rate gap.”
Dr Vu Dinh Anh, another economic expert, said VAMC’s bad debt settlement is just the tip of the iceberg, and the bottom line is restructuring the economy.
At the press briefing, Nguyen Thi Hong, an SBV official, reported that the number of businesses that declared bankruptcy or suspended operations remains high, and banks are reluctant to offer subprime loans due to substantial risks.