Loans for Transport Projects Face Risks of Becoming Bad Debts

In a report on implementation of the National Assembly’s resolutions sent to deputies, the Governor of the State Bank of Vietnam (SBV) expressed his concern about loans to Build-Operate-Transfer (BOT) transport projects, as about VND64,676 billion (US$2.78 billion) of BOT loans faced the risk of being labelled bad debt.

According to the SBV’s report, from 2016 to now, credit growth has been positive since the first months of the year and risen over 16% annually on average. Non-performing loans (NPLs) of credit institutions continued to be handled, controlled and capped at less than 3% (bad debt ratio on the balance sheet was 1.77% by the end of March 2020).

From 2012 to the end of March 2020, credit institutions handled VND1,076.95 trillion of bad debts (particularly, VND159.7 trillion in 2019 and VND26.94 trillion in the first three months of 2020).

On average, in 2016-2019, outstanding loans of BOT and transport sectors increased by 10.82%, accounting for 1.51%. The growth decelerated sharply over the years and the share of outstanding loans also dropped. By the end of March 2020, outstanding loans in these sectors grew by 1.27% and accounted for 1.35%.

According to statistics, most investment funding in BOT projects came from banks, and investors accounted for just 10-20% of the total fund. Therefore, when projects are unable to collect fees or are not allowed to raise fees as per their financial plans, bank loans are at risk of becoming bad debts.

For example, in the Cai Lay BOT Project (Tien Giang province), of the total investment capital of nearly VND1,400 billion, investors held just over VND200 billion and the rest was a loan. The project could not collect fees due to public protests, therefore heightening risks to the loan.

Similarly, toll revenue at National Road 19 BOT Project (in Binh Dinh and Gia Lai provinces) failed to meet its financial plans (only 87% in 2018 and 79% in the first six months of 2019).

In addition, the Viet Tri - Ba Vi Bridge Investment and Construction Project that links National Road 32 with National Road 32C, invested in the BOT form (Van Lang Bridge), also seriously failed to achieve revenue as compared to its financial plan.

Toll Station T2 on National Road 91 (Can Tho City) has also stopped tolling since May 2019 and its loan repayment to banks was affected. Therefore, the investor asked the Government to purchase it. Many investors proposed handing their projects to the Government because they could not collect fees as the roadmaps stated in the contracts signed with the Ministry of Transport.

According to the SBV, many BOT projects could not fetch revenue as initially expected. This might turn trillions of Vietnamese dong of outstanding loans into bad debts.

Besides, the bad debt ratio to outstanding loans in BOT and BT projects started to increase rapidly from the beginning of 2019, mainly due to lower-than-expected toll revenue. Recently, the SBV has repeatedly warned commercial banks about lending BOT and BT traffic projects.

In 2019, four credit institutions signed a credit contract to fund VND6,686 billion for Trung Luong - My Thuan Expressway Project. Currently, they are disbursing as per the project progress.

According to the SBV, about VND64,676 billion of outstanding loans incurred by 49 existing BOT transport projects may be restructured and grouped into nonperforming loans. This will affect business performance and bad debt restructuring and handling of credit institutions.

Facing this reality, to boost effective lending to BOT transport projects and facilitate economic development, the central bank asked the Government and the Prime Minister to direct relevant ministries, branches and localities to work closely and actively support banks.

According to the SBV, all solutions need to be taken into consideration to engage all available resources to ensure debt repayment to banks as per credit contracts signed with banks; tackle all matters concerning toll collection and deploy automatic toll collection to ensure transparency and control toll revenue.

In particular, it is necessary to ensure security and order at toll booths and work with the Ministry of Transport to manage toll collection and plan local traffic development.

Source: Vietnam Business Forum