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Home / Economy / Banking & Finance
Vietnam resolves bad debts worth US$4.38 billion in 8 months
Ngoc Thuy 10:57, 2018/06/14
From August 15, 2017 to the end of March, bad debts worth VND100.5 trillion (US$4.42 billion) were resolved under a parliamentary resolution, bringing the bad debt ratio total to 2.18% of total outstanding loans, below the 3% target set by the National Assembly.
Resolution No.42, which came into effect last August, provides special pilot treatment of bad debts at credit institution. 
 
Illustration photo.
Illustration photo.
The resolution has been a vital instrument in resolving bad debts, said the State bank of Vietnam (SBV) in its latest report. 

Consequently, bad debts in Ho Chi Minh City have been reduced VND18 trillion (US$791 million) as compared with the beginning of the year, accounting for 3.2% of total outstanding loans, down 0.3 percentage points, said Nguyen Hoang Minh, Deputy Director of SBV branch in Ho Chi Minh City. 

By excluding bad debts at three banks under compulsory acquisition, this percentage in Ho Chi Minh City would be around 1.9%, Minh added. 

According to the SBV, Resolution No.42 has created legal certainty and resolved the inadequacy of the former regulations regarding the process of handling bad debts. Some notable components of the resolution are the inclusion of a new method for handling bad debts and new approaches for dealing with collateral, which is not distrained for judgment enforcement or observance to administrative decisions of competent authorities. 

Additionally, Resolution No.42 has partly contributed to the formation of a debt trading market in Vietnam and played its part in restricting new bad debts.

In the coming time, the Government will continue pushing forward with weak credit institutions restructuring and resolving bad debts, informed the SBV. Credit institutions are requested to enhance financial capabilities, developing new payment methods and non-credit services. 

A report by Moody’s in February assessed enhanced legal framework through Resolution No.42 allows banks to be more active in managing bad debts.

“We think that banks are on a positive track toward resolving their bad debts,” said analysts at Moody’s Investors Service.

Given a favorable macroeconomic environment and the help of Resolution 42, other rated banks are also likely to make progress in resolving legacy problem assets over the next 12-18 months, the report added.

Generally, with improved profitability, banks are now capable of increasing credit provisions and building up buffers against problem assets. At this pace, more banks are likely to fully write down their Vietnam Asset Management Company (VAMC) bond holdings by the end of 2018, the analysts said.

According to Resolution No.42, bad debts are settled publicly and transparently and legitimate rights and interests of credit institutions, bad debt purchaser, manager and relevant entities are protected. Besides, state budget is not used for settlement of bad debts. 
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