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Economic Sector

Last updated: Monday, May 21, 2018


Barriers Urgently Addressed

Posted: Tuesday, June 06, 2017

Bad debt at banks and credit institutions is always a big barrier and drag on macro-economic development, according to economic experts. The existing dire need for the law-making National Assembly to adopt a resolution to deal with bad debt is the main topic of a recent workshop on “Bad Debt Management - From Policy and Law Perspective” in Hanoi.

Mr Nguyen Duc Kien, Vice Chairman of the Economic Commission, National Assembly, said that bad debts that he called “blood clots” have been extremely serious and affected many economic aspects. Specifically, according to updated data of credit institutions, as of September 2016, total bad debt balance of credit institutions, including debts sold to the Vietnam Asset Management Company (VAMC), are valued at VND400 trillion, or 5.8 per cent of total outstanding loans.

Mr Nghiem Xuan Thanh, Chairman of the Board of Directors of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), acknowledged that the banking sector has been struggling to bring down bad debt ratio from 17.4 per cent to 2.46 per cent on total outstanding loans since 2012. However, huge bad debt is narrowing enterprises’ access to capital sources and hindering economic development.

Recently, in its third meeting session, the National Assembly heard a report on the socioeconomic situation and a draft resolution on treatment of bad debts of credit institutions presented by Governor of the State Bank of Vietnam (SBV) Le Minh Hung. If the “blood clots” are not treated soon enough, we will lack investment capital for economic development and GDP growth objective may be missed.

Lawyer Truong Thanh Duc said bad debt settlement goes with the seizure and disposal of collateral. Specifically, when an entity wants to borrow money from banks, it must have security assets for the borrowing. Upon the maturity of the loan, it fails to repay banks, loans become bad debts. According to current laws, it takes a very long time, even several years, for banks to recover their loans from security assets. This blocked cash flows from the economy.

Dr Nguyen Duc Huong, Senior Adviser for LienVietPostBank, said, the right to seize collateral assets of credit institutions is consistent with the Constitution. But, the right to seize security assets of credit institutions is divided into two cases. Firstly, where guaranteeing party and the asset-keeping party of bad debts have an agreement allowing credit institutions to settle security assets, they will have the right to settle security assets as pre-agreed. Secondly, where they cannot reach an agreement on settlement of security assets, credit institutions hold the right to ask the court to apply abridged procedures.

This resolution complicates the issue because a borrower agreed to use the right to use and own assets to secure the loan at the witness of public notary and registered security transactions before he/she goes to apply for the loan. This means that if such borrower fails to fulfil his/her agreed obligations, he/she will automatically lose the right to use and own the property. However, if the law provides the second case, he/she will willingly seek to circumvent the law by soliciting the court and the verdict enforcement unit to deter banks. Meanwhile, in practice, this is a very complicated process. After an entity declares bankruptcy or insolvency, it takes years to sell collaterals or “blood clots” with a lot of procedures and approvals.

For that reason, SBV Governor Le Minh Hung urged lawmakers to discuss and adopt solutions to clear bad debts at the meeting session on June 7, 2017.

Anh Phuong

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