Care needed in handling bad debts State Bank of Vietnam (SBV) Governor Nguyen Van Binh has sent a document to the National Assembly (NA) outlining the ongoing handling of bad debts, emphasizing that the matter needs to be considered carefully and that it will be a time-consuming process.     In discussions at the NA last month on Vietnam’s socio-economic development, Mr. Huynh Nghia, NA delegate for Da Nang, raised two important concerns. Firstly, bad debts are being collected by the Vietnam Assets Management Company (VAMC) but they remain a problem and are a burden on the economy. Vietnam must resolve its bad debt situation under a market mechanism, as VAMC has only sold 2-3 per cent of debts over the last three years. At this pace, he asked, when will all debts have been addressed? If banks and enterprises could be free of bad debts there would be trillions of VND available to boost the economy. Secondly, he went on, the handling of bad debts must be based on a market with transparency, which, for example, was lacking in the real estate market before the bubble burst, and people should not be overly optimistic that they can be handled quickly. Key factors Governor Binh wrote that the SBV held similar views to Mr. Nghia. Following international experience, in order to handle bad debts quickly the key factors are the government delivering the necessary capital, a clear legal framework regarding collateral, macro-economic stability, solid prospects for production and business, a good financial market, a proper market for trading debts, and a system that attracts investors in handling bad debts. But Vietnam is yet to have all of these factors in place, he wrote. Bad debts therefore still need to be repaid or investors need to take them on and repay creditors.   The work of the VAMC is one method to handle bad debts under Decision No. 843 and is considered to have been initially effective, with it purchasing debts from financial institutions via issuing special bonds, which clears the financial reports of these institutions and provides the conditions for them to expand their credit provision at lower interest rates. Slow sales The process adopted by the VAMC is only gradually creating a market to handle bad debts. Governor Binh said that offering debts at a lower price to attract buyers would be to the detriment of enterprises, making their situation even worse and resulting in job losses. Moreover, the trading of bad debts under a market mechanism is not a method to fully handle bad debts as they must still be repaid. The first step in handling bad debts, he went on, is to detach them from financial institutions and move them to a unit with the capacity to address them in accordance with international practice. Asset management companies in Japan, South Korea, Malaysia, Thailand, and Indonesia took 10-15 years to handle the bad debts of their commercial banks. Given that Vietnam lacks many of the key factors mentioned above, the positive results so far stem from the significant efforts of the VAMC and the SBV Mr. Binh said that issues remain in handling bad debts, including macro-economic factors and the slow recovery of the real estate market, together with the process falling behind schedule. With the current implementation, however, Governor Binh believes the plan of cut the bad debt ratio to less than 3 per cent this year remains feasible, despite the fact that more is needed to fully address the bad debt problem. VET