Bad debts are falling, says central bank

The settled debts made up for nearly 18 percent of the VND202 trillion (US$9.62 billion) total bad debts reported in September by SBV inspectors. This amount accounted for 8.6 percent of outstanding loans.

SBV also seeks to establish an asset management company to resolve bad debts. This plan has been underway since last year and SBV expects to submit it to the Government next month. Accordingly, the company would be able to handle some kinds of bad debt estimated at VND60-100 trillion (US$2.8-4.7 billion) in total.

Forming a council under the Government to deal with bad debt was also mentioned as a possible measure to solve the problem.

According to SBV's chief inspector Nguyen Huu Nghia, the current bad debts could be traced back to the rapid credit growth - nearly 30 percent on average per year - during the period from 2005-10.

Nghia said that this year could not result in more bad debts because all of the debts this year are of a short-term nature, adding that the total bad debts account for around 8-10 percent of outstanding loans.

He said that 85 percent of bad debts have security assets equal to 135 percent of the total. The credit institutions also have credit risk provisions of about VND70 trillion (US$3.3 billion).

However, most security assets of bad debts are real estate, and the real estate market is now in a fix. SBV said that it is important to tackle the difficulties affecting the real estate market and speed up inventory clearance to eliminate bad debts and boost the economy.

Meanwhile, SBV also enhanced the restructuring of the commercial bank system. The central bank discovered that the real bad debts of nine commercial banks awaiting restructuring are much higher than the reported figures.

To date, five out of nine banks have had their restructuring plans approved and the process is progressing. SBV said that after 2012, commercial banks that fail to raise a proper restructuring plan would be subject to coercive measures.