World Bank suggestions to resolve Vietnam’s bad debts

The four suggestions are modernisation of the financial sector; promotion of bank regulations and supervision; restructuring and resolution of sub-standard banks and assets; and enhancement of macro safety supervision.

The suggestions were shared at a meeting between Ceyla Pazabassiouglu, senior director of Finance and Markets Global Practice, World Bank Group, and State Bank of Vietnam (SBV)’s representatives in Hanoi earlier this week.

The World Bank believes that these four recommendations, which are all necessary and will support each other, will contribute towards helping resolve the issue of NPLs.

With stronger participation of the Government and the National Assembly, Vietnam must map out effective policies to tackle the NPL problem and restructure credit institutions, it said.

Experts said that NPL management is a complex issue that will involve many agencies and bodies such as the ministries of finance, justice, planning and investment, banks, as well as supervisory, tax and auditing bodies.

If bad debts are not fully resolved, the economy will stagnate and lending will decline. Besides, commercial banks will not operate effectively, which can lead to loss of liquidity and cause chain disruption in the banking system. The need of the hour is cooperation of the public sector linked to bad debt management and resolution.

The World Bank said it has designed a four-year technical cooperation programme to help Vietnam resolve the issue of NPLs. Negotiations is underway with donors for the programme’s capital source.

At the meeting, SBV deputy governor Nguyen Kim Anh said the restructuring of credit institutions and resolution of NPLs have been a priority for the Government and the SBV since the past few years.

The SBV has shared a scheme on restructuring the system of credit institutions and resolving weak credit institutions with the Political Bureau. It has been submitted to the National Assembly for a resolution on resolving NPLs (it is expected to be approved in June) and a draft law to the National Assembly on revising a number of articles in the Law on Credit Institutions, Anh said.

However, Anh said, there are still many challenges to resolving the bad debt problem, and the central bank needs to learn from other countries’ experience and calls for support and advice from international organisations, including the World Bank, to meet the target of restructuring the banking system and resolving the NPL issue in the 2016-20 period.