Bad debt and public debt are two important topics being discussed by lawmakers at the 8th ongoing meeting of the 13th National Assembly of Vietnam in Hanoi.
Bad debt needs real money
The notable result is the debt handling by Vietnam Asset Management Company (VAMC). As of end-August, VAMC purchased 3,281 loan items with a total outstanding principal balance of VND56 trillion (US$2.6 billion) and recovered VND1,462 billion in bad debt from 31 credit institutions.
However, bad debt, also known as non-performing loan (NPL), has not been solved to the root and kept rising. It is also a normal development when economic conditions are still in difficulty and companies continue to suffer losses.
The value of bad debt reportedly handled so far is not clear. The State Bank of Vietnam (SBV) reported a 53.6 per cent of bad debt tackled, or VND160 trillion since 2012, but another report said VND183 trillion. According to audit reports by the lawmaking National Assembly, bad debt is on the rise but the government reported a fall in bad debt. A National Assembly deputy doubted the SBV’s data that the bad debt ratio of the Vietnamese banking system is some 3.7 per cent.
Admittedly, handling bad debt requires real money, not just adjusting figures on the book. Thus far, VAMC bought nearly VND95 trillion of bad debt, while it sold and recovered almost VND4 trillion. However, the debt sold to VAMC actually belongs to commercial banks and cannot be crossed off the bad debt portfolio. VAMC’s exact operations are management, not buyout or sell-out. In reality, debt essentially belongs to the central bank, which will eventually manage such debt.
Some deputies requested the Government to have effective and radical plans to settle bad debt, not let it remain unsettled and cause credit jams.
The Government recently reported on bad debt tacking coupled with credit institution restructuring in accordance with approved schemes. According to this report, by the end of 2015, current bad debt will be basically handled and controlled and credit quality will be improved to create safe and sustainable development of credit institutions till 2020.
According to the Government, as of October 2014, Vietnam handled 54.3 per cent of total bad debt determined in September 2012, mainly by recovering debts, using risk provisions, selling and processing collaterals, including bad debt selling to VAMC. Current, bad debt ratio at credit institutions is about 3.8 per cent and is on a downward trend.
The government said it will continue to accelerate bad debt handling along with credit institution restructuring by completing the legal framework and completing regulations on the purchase, sale and settlement of debts, financial collaterals, and the responsibilities of borrowers and powers of creditors. It will strongly develop debt trading market; encourage domestic and foreign investors to buy and sell bad debt; require credit institutions to make public and transparent disclosure of bad debts and settlement results, carry out measures to control credit quality and limit new bad debt. By the end of 2015, the bad debt ratio is expected to be brought down to 3 per cent.
Dealing with public debt pressures
Aside from bad debt, the Government also recently announced the tightening of public debt management, especially new loans. The Governmental Resolution of the monthly meeting for October 2014 said Vietnam's public debt increased from 51.7 per cent of GDP in 2010 to 60.3 per cent by the end of 2014. The country finds it harder to borrow shorter-term loans and interest rates also tend to rise because Vietnam has become a middle-income country so concessional loans and ODA loans with lower interest rates decrease. The proportion of domestic borrowing increased mainly because of short-term government bond issue.
Up to 98 per cent of public debt has gone to infrastructure investment, while the rest is sent to State coffers. In its October Resolution, the Government urged central agencies and local governments to intensify public debt management, especially new loans, including government loans, government-guaranteed loans, and loans incurred by local governments. The Government requested them to restructure public debt, towards increasing the proportion of long-term loans bearing low interest rates, and tightly control and ensure the repayment of government-guaranteed loans.
The Government also directed reviewing institutional improvement, amendments and supplements to the State Budget Law, the Public Debt Management Law, medium-term debt management programme and strategy. Public debt will be gradually reduced from 2016 - 2020.
Vietnamese
