Bad debt casts shadow over banking restructure Some economists have pointed out that the biggest obstacle in the ongoing banking restructure effort is the problem of bad debt. The Vietnamese banking system has been carrying out its policy of banking restructure for three years, along with the restructure of public investment and state-owned enterprises (SOEs). According to experts, the restructuring process has brought the country considerable benefits. However, some roadblocks remain. In those three years, nine weak banks have been merged without intervention by the State Bank of Vietnam. This has been the trend in many other countries as well. Mergers have helped to save many poorly-performing banks from bankruptcy. Economists have said that the biggest benefit to this is ensuring the liquidity of banks, which in turn ensures stability for the nation's economy.   Some economists have pointed out that the biggest obstacle in the ongoing banking restructure effort is the problem of bad debt.  The establishment of the Vietnam Asset Management Company (VAMC) is also important. The company has helped to speed up the settlement of bad debt after banking restructure. By the end of July this year, VAMC will have bought nearly VND54 trillion (USD2.57 billion) worth of bad debt. As of June 2014, Vietnam’s rate of bad debt had gone up by just over 38% from early this year. However, compared to the same period last year, the rate remained relatively under control. In the first halves of 2011 and 2012, the rates of bad debt increased by 43.7% and 48.9% respectively. Liquidity in the banking system has also improved since the restructuring process. Both deposit and lending interest rates have been cut, creating better access to credit. Despite these improvements, many economists say the biggest difficulty after banks are restructured is the lingering bad debt. To add to the problem, there has been contradictory numbers released about the amount of bad debt within the system. The most-used statistic is a rate of 10.3%, which is considered manageable and better than many other foreign countries.  However, some economists warn that there is an urgent need to work out the rate more precisely and create a more specific plan to settle the bad debt. According to Dr. Nguyen Duc Thanh, director of the Viet Nam Centre for Economic and Policy Research, during the three-year banking restructure process, only the role of VAMC has been clearly defined, and both long and short-term solutions for the bad deb problem remain vague. Thanh added that the bad debt settlement does not depend solely on VAMC, which buys bad debt by special bonds with five-year terms. If VAMC cannot settle the debts, they are returned back to the banking system. Moreover, restructuring has not been going as well with the public investment and SOEs. This has had a great affect the efficiency of the banking restructure. He explained that up to 60% of bad debt comes from SOEs, and if their restructuring process does not get better, the bad debt problem will remain unchanged.  By Nguyen Tuyen, dtinews.vn