VietNamNet Bridge – Economists have urged banks to look to foreign sources to settle their bad debts as Vietnam Asset Management Company (VAMC) has limited funds and can issue special bonds only.

Do Manh Hung, deputy chair of the National Assembly’s Social Affairs Committee, was quoted in Dau Tu newspaper as saying that the VAMC, with only VND500 billion in capital, was like a “doctor of a health care prevention center during an epidemic”.

Dr Le Xuan Nghia, the former deputy chair of the National Financial Supervision Council, had a similar comparison, likening the VAMC to “scrap dealer”.

Tran Dinh Thien, head of the Vietnam Economics Institute, said: “We’d better not expect too much from VAMC to settle bad debts. We need cash to settle bad debts.

He said that Vietnam could settle bad debts by using cash sourced from the government’s borrowing from domestic and foreign sources, and then pay back the loans.

He conceded that the money collected from sales of bad debt would not be enough to pay back the loans, but said the price Vietnam must pay for debt settlement would still be “bearable”.

“Meanwhile, if Vietnam continues to be hesitant and slow in dealing with bad debt, the price to pay will become even heavier,” Thien warned.

Pham Nam Kim, a well-known economist, agreed with Thien, saying that Vietnam needs to settle the bad debts as soon as possible, rather than do gradually. “With the current bad debt situation, no bank would be daring enough to lend to weak businesses,” he said.

As Vietnam does not have money to settle bad debts, it should think about borrowing from foreign sources, he said.

Many analysts have said bad debts, as well as weak demand, are affecting credit growth at banks (only 0.62 percent as of April 22 compared with the end of 2013, according to the State Bank).

The slow growth, they believe, is caused by the banks themselves, which are hesitant to lend money, fearing an increase in bad debts.

Kim said that other governments use cash to help settle bad debts and revive banks, while Vietnam uses an “accountancy method” to settle debts.

The idea of borrowing money from foreign sources to settle debt could be seen as a “weird idea” in the eyes of some analysts, he said, especially those who have repeatedly warned about the high public debts Vietnam is incurring.

However, Kim still believes this is the best possible solution.

“I understand that this would increase the public debt. But I believe this would help the banking system recover. Once the system gets stronger, businesses would then be able to access bank loans more easily,” he said.

Tran Thuy