The State Bank of Vietnam (SBV) is drafting a plan to set up a national debt trading company.

Dealing with bad debts is to save the national economy

The company will have a capacity to deal with bed debts worth from VND60 trillion- VND100 trillion (USD2.87 billion-USD4.79 billion).

According to SBV statistics, after several measures were taken against bad debts in the banking system, the debt has been cut by VND36 trillion (USD1.72 billion) on the original VND202 trillion (USD9.68 billion). Bad debts currently account for between 8% and 10% of total outstanding loans.

SBV’s Chief Inspector Nguyen Huu Nghia said that 85% of the total bad debts have collateral valued at 135% of the total bad debts. Meanwhile, banks have set up risk provision funds valued at around VND70 trillion (USD3.35 billion).

Nghia said that most of the guaranteed assets were in real estate and drastic measures should be taken to save the market and reduce bad debts.

“Settling real estate-related bed debts means dealing with bad debts in the banking system and in the country’s economy. Reinvigorating the real estate market is not the SBV’s responsibility, that lies with ministries, agencies and localities,”

The SBV assessed that it’s not banks that were to blame for the current bad debts, but instead blamed the recent sharp credit growth. The situation had worsened amid the economic downturn.

Concerning the restructuring of financial institutions, the SBV said that it has carried out inspections and audited nine banks earmarked for restructuring. The results showed that bad debts at several banks were much higher than they had initially reported.

Some banks claimed their bad debt rates at only 3% but the real figure had climbed hugely. Bad debts at some banks were equal or higher than their chartered capital.

Five incompetent banks are conducting their restructuring while four others have not yet worked out proper restructuring plans. The SBV will take drastic measures if no moves are made by the ailing banks by the end of year.

Dr. Tran Hoang Ngan, a member of the NA's Economic Committee, said on the sideline of the National Assembly’s meeting that the main purpose of dealing with bad debts is to save the economy not the banking system or the real estate market.

Ngan proposed setting up a committee for bad debt settlement in order to root out bad debts.

Meanwhile, Dr. Tran Du Lich said banks should use capital from their risk provision funds to deal with bad debts.