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Economic Sector

Last updated: Monday, October 23, 2017

 

Bad Debt Market Activated

Posted: Monday, September 25, 2017


There are certain signs that the bad debt market is being started, paving the way for many investors to engage in bad debt trading.

Solutions are being sought for the problem of handling bad debts of commercial banks. A huge amount of bad debt resting at the Vietnam Asset Management Company (VAMC), remains unsolved, making it a blood clot in the fund vein of the economy. However, the gradual formation of bad debt market is opening a new way for more substantive debt settlement.

Policy boosts
Resolution 42/2017 of the law-making National Assembly on pilot settlement of bad debts officially took effect on August 15, 2017.

In early September, the Ministry of Finance proposed removing conditions for debt trading business and recommended eliminating debt trading from the list of conditional business lines.

In a document on reconsideration of conditional business lines sent to the Ministry of Planning and Investment, the Ministry of Finance stated that debt trading does not significantly affect national defence, national security, social order and safety, social morality and public health.

Regulations on conditions stated in Decree 96 are not intended to ensure national defence, national security, social order, social morality and public health either.

Therefore, the Ministry of Finance recommended abolishing conditions on debt trading business and crossing off debt trading business from the list of conditional business lines as stipulated in the Investment Law.

In addition, the ministry is seeking comments and opinions on the abolition of Decree 107/2007 on debt collection service business because conditions herein are unnecessary for this business. It, however, needs security and order conditions as per Decree 96/2016.

Moreover, the State Bank of Vietnam (SBV) was assigned by the Government to draft a circular amending and supplementing Circular 19 on VAMC's buying, selling and settlement of bad debts.

Recent market developments signalled that banks have a series of positive actions to recover debt. The starting action is the settlement of over 40-storey Saigon One Tower project in Ho Chi Minh City where its investor incurred over VND7 trillion of debts. Many other projects were also foreclosed.

Subsequently, on September 12, VCB Thu Duc Branch in Ho Chi Minh City announced to auction a security property with a starting offering price of VND48.6 billion. The land property is located in Ward 5, Vung Tau City.

Many banks have held bad debts for years. Agribank AMC, an asset management company subordinated to Agribank, announced on September 19 that V-Ikon project will be put up for auction of all assets and rights for a starting price of VND319.5 billion. However, the tender was unsuccessful. VietinBank Hoa Binh Branch issued a notice on the seizure of collaterals to recover its loans. It planned to seize collaterals on September 20, including the right to use 92 square metres of residential land and assets on it. The property is situated at Lane 282/25, Section 25, Dai Kim Ward, Hoang Mai District, Hanoi. Some commercial banks have actively seized security assets such as Techcombank. The lender has to date announced to capture 32 collaterals - vehicles and real estate owned by organisations and individuals.

Removing barriers
It is clear that banks are taking the trend of selling security assets to recover loans. Policies are tending to widen the door for handling bad debt. Of course, debt settlement is never simple due to the non-cooperation of customers and high value of property put for sale.

In principle, after the process of foreclosure, security assets will be evaluated by an independent agency before being put up for auction.

Resolution 42 allows credit institutions to sell at market prices, which may be higher or lower than the current balance value. Thus, banks may accelerate the pace of foreclosure to long-standing non-performing loans in the system.

This resolution also allows banks to sell debts below loan values - the lent value plus interests carried. Buyers are indefinite. On the other hand, banks are allowed to take possession of collaterals without the need to seek a verdict from court. This is a favourable condition for banks and debtors to fix collateral prices, most of which are real estate.

In fact, the debt trading market is being driven by policies. From Resolution 42 to supporting information on opening up the market meet aspirations of all stakeholders.

Bao Chau








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