Banks' bad debt continues to increase

A seminar on handling bad debts during the Covid-19 pandemic.

At the seminar "Handling bad debts during the Covid-19 pandemic and completing the legal policy on bad debt handling towards the legalization of Resolution 42/2017/QH14" organized by the Vietnam Banks Association on November 24, experts and bank representatives expressed their desire to complete a synchronous legal framework to promote participation in the debt trading market.

According to Tran Phuong, Deputy General Director of BIDV, the pandemic caused an increase in bad debts at banks. By the end of the third quarter of 2021, statistics at 27 banks listed on the floor showed that the total bad debt was VND113,000 billion, 26% higher than the beginning of the year.

Representatives of banks also forecast that by the end of the year or into 2022, the volume of bad debts would rise, because the outstanding debt affected by the pandemic amounted to more than VND3 trillion, while the nature of the restructured debt was bad debt. Moreover, the collection and handling of bad debts also faced many difficulties. In the first eight months of 2021, the debt collection was VND90.1 trillion, reaching 63% compared to the end of 2020.

Regarding the difficulties of debt collection, Vu Minh Phuong, Deputy Head of the Debt Department at Vietcombank, said that debt trading activities still had many problems, affecting the operation of debt trading floors. For example, when a credit institution sells a debt, they have to disclose a lot of relevant information, which is not allowed under information security regulations.

In particular, there is still no specific regulation on how to determine the debt selling price, so the bank only relies on the value of collateral assets. However, state-owned banks like Vietcombank are not allowed to sell debt below the original price to avoid losing State capital.

A "bright spot" in the bad debt handling activities is the launch of the VAMC debt trading floor. According to Nguyen Quang Hoa, Deputy Director of the VAMC Debt Exchange, after more than a month of operation, on November 19, 2021, the VAMC debt exchange signed a contract to propose brokers to sell bad debts and its collateral with a total outstanding balance of VND7,458 billion. 35 units have been granted member accounts on this exchange now.

According to banks, in order for the debt trading floor to operate more effectively, the Government needs to complete a synchronous legal framework to promote participation in the debt trading market. Simultaneously, develop policies to attract foreign investors.

Regarding the desire of credit institutions to legislate Resolution 42, according to Nguyen Quoc Hung, General Secretary of the Vietnam Banks Association, Resolution 42 on piloting bad debt settlement has only one year left before it expires, then there will be many risks for the banking system, including the risk of "debtor is bigger than creditor" and delayed debt repayment.

Meanwhile, the representative of BIDV suggested that the Government should issue policies to support and strengthen the activities and capacity of businesses and individuals, and need to have support mechanisms for credit institutions. State agencies need to closely coordinate with credit institutions in handling debt settlement operations (initiating lawsuits and executing judgments), to avoid stagnation in receiving and processing dossiers.

On the management side, at the seminar, Le Trung Kien, Deputy Director of the Department of Safety Supervision of credit institution system (Department IV) of the Banking Supervisory Agency under the SBV, said the State Bank of Vietnam has directed the banking system to maintain a reasonable level of credit growth and assist people and businesses in recovering production and business activities.

The SBV is also promoting the digital transformation of the banking system, increasing risk provisioning, proposing the National Assembly to promulgate the Law on Bad Debt Handling, and strengthening debt trading activities. In addition, the State Bank is studying and considering slowing down the application of short-term capital for medium and long-term loans.