He was speaking at a recent forum on challenges and opportunities of Vietnam’s economy in Hanoi.
Phuoc said bad debt settlement is imperative as bad loans pose challenges to the economy. He explained bad debt pushes lending rates to 9-10% perd annum though inflation stays at 5-6%.
Remarking on the consequences, Phuoc said the return on equity in the banking system has dipped 3-fold, from 12% to 4%, over the past three years. He pointed out that 12.5% of Vietnam’s gross domestic product (GDP) had gone to the bad debt settlement process over the past five years.
Phuoc emphasized the urgent need to handle bad debt in the 2016-2020 period, not because of the benefits for certain shareholders or banks, but rather this would back economic growth in general.
He said prompt action must be taken to cope with bad debt. He is against the option to use the State budget to handle bad debt, likening it to “taking from the poor to give to the rich.”
Phuoc said the State Bank of Vietnam (SBV) alone could not handle all bad debts.
He explained the country needs an estimated US$25 billion for bad debt settlement in the next five years.
The amount should include US$10 billion to deal with bad debt bought by Vietnam Asset Management Company (VAMC).
The remainder of US$15 billion would be used by banks by liquidating assets and risk provisions.
Phuoc said Vietnam should develop a debt trading market to back bad debt settlement.
He noted that even under healthy economic conditions, the bad debt ratio stands at some 1.25% a year, or VND60-70 trillion, so a debt trading market is badly needed.
He said to settle bad debt, the State should mobilize capital from citizens via the issuance of special bonds. Debt trading between VAMC and credit institutions must be based on market prices under guidance of State agencies.