VietNamNet Bridge - The Governor of the State Bank of Vietnam (SBV) Le Minh Hung, as soon as he took office, released two documents with instructions to settle commercial banks’ debts.

Local newspapers commented that Hung’s predecessor - Nguyen Van Binh, former Governor of the State Bank – has ‘gone half way to settle bad debts’.

The report on the implementation of the 2011-2015 socio-economic development plan showed that the non-performing loan (NPL) ratio of the banking system had fallen to 2.5 percent by the end of 2015.

However, the challenges ahead that the newly appointed Governor has to face will still be very big. 

The report on the implementation of the 2011-2015 socio-economic development plan showed that the non-performing loan (NPL) ratio of the banking system had fallen to 2.5 percent by the end of 2015.

The NPLs have just been collected and put into the coffer of the Vietnam Asset Management Company (VAMC), the legal entity set up by SBV which specializes in buying bad debts from commercial banks. 

This means that the bad debt still exists and it may grow excessively at any time.

The first document Hung signed on the position of the State Bank’s Governor was the Decision 618 which says VAMC can buy bad debts at the market prices.

Experts believe that the new decision would help speed up process of debt settlement.

The newly appointed Governor has also released a document requesting commercial banks to strengthen control over credit quality and push up the bad debt settlement. Under the decision, banks must keep the NPL ratio at below 3 percent of total outstanding loans.

Applauding Hung’s latest decisions, economists said they still can see big barriers that hinder bad debt trading.

Nguyen Duc Do, deputy head of the Economics & Finance Institute, commented on Infonet that with the new mechanism, there would be more NPL trading transactions; however, with the lower prices, higher discount rates and prices closer to the market prices, banks may not want to sell debts, while buyers may be reluctant to buy.

Do went on to say that many barriers still exist, including legal barriers. 

For example, it is difficult to liquidate some kinds of assets and make ownership transfer. It is also difficult to determine the value of the bad loans:  VAMC may have to buy debts at high prices, but has to sell debts at lower prices.

Thoi bao Kinh Te Sai Gon commented that debt is seen as a commodity, and therefore, there must be a market for the commodity to be traded. 

Realizing this, the government in December 2014 released a document requesting the State Bank and Ministry of Finance to draw up a legal framework for a debt & asset trading market. However, to date, the two ministries still have not submitted the framework. 


Kim Chi