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Economic Sector

Last updated: Friday, July 20, 2018


Bad Debt to Be Tackled More Substantively

Posted: Monday, July 31, 2017

Prime Minister Nguyen Xuan Phuc recently issued Directive 32/CT-TTg on enforcement of Resolution 42/2017/QH14 of the National Assembly of Vietnam on pilot settlement of bad debts borne by credit institutions.

The State Bank of Vietnam (SBV) released data on bad debt ratio as of December 31, 2016, showing that bad debts on internal balance sheets and sold to Vietnam Asset Management Company (VAMC) accounted for 5.81 per cent of total outstanding loans. If rescheduled bad debts were taken into account, the bad debt ratio would be 10.08 per cent.

Deadline for implementation guidelines
The National Assembly passed Resolution 42/2017/QH14 on pilot settlement of bad debts of credit institutions. To enforce this rule in time, the Prime Minister issued a directive requiring relevant ministries and localities to focus on timely and effective carrying out of the resolution while applying preventive measures to minimise new bad debts and improve credit quality of credit institutions.

He requested a stronger role of VAMC in tackling bad debts. He also urged appropriate measures to bring the non-performing loan ratio to 3 per cent or lower by 2020, exclusive of non-performing loans of weak commercial banks with specific treatments approved by the Government.

According to the directive of the Prime Minister, the SBV shall assume the prime responsibility and coordinate with concerned agencies to guide VAMC’s purchase and sale of bad debts. The Ministry of Natural Resources and Environment shall assume the prime responsibility and coordinate with concerned agencies to guide registration of mortgage of land use rights and assets attached to land. The Ministry of Justice directed enforcement agencies at all levels to apply regulations on civil judgement execution related to bad debts of credit institutions and VAMC as per the law. The Ministry of Public Security shall direct public security agencies at all levels to perform the task of maintaining security and order when credit institutions and VAMC exercise the right to seize security property to cover bad debts. The Ministry of Natural Resources and Environment shall direct related property ownership registration bodies to perform transfer procedures relating to bad debt.

The Prime Minister requested instructive documents guiding the enforcement of the Resolution must be issued before August 15.

Bad debt actually falls below 3 per cent
As for the banking sector, instead of hosting a sector review conference as previous years, the SBV decided to organise a conference on sector-wide implementation of basic contents of the resolution and proposals to tackle bad debts timely and drastically.

Speaking of the resolution of the National Assembly on bad debt, Governor Le Minh Hung emphasised that “This is a very important legal document as this is the very first time legal issues relating to settlement of bad debts and collateral assets of credit institutions that have lasted for many years. Once implemented well in practice, it will create a synchronous, effective and feasible mechanism for fast and definitive handling of bad debts at credit institutions and unlock capital sources for national economic development.”

In the past three years, restructuring has helped reduce bad debt ratio but bad debts have yet to be completely settled but just sold to VAMC for a certain period.

The Government is radically directing the solution to bad debts. In the directive issued on July 20, the State Bank of Vietnam (SBV) targets to bring bad debt ratio to less than 3 per cent, exclusive of nonperforming loans of classified weak banks.

Bao Chau

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