Banks alone cannot clear their bad debts: economists

Banks alone cannot clear their bad debts: economists

A transaction at the Bank for Investment and Development of Vietnam (BIDV) in Hanoi. Photo: Kham/REUTERS

Bad debts have continued to drag on Vietnam’s economy due to the failure of the central bank’s bad debt buying scheme, economists said.

The government’s strategy to alleviate bad debt remained fragmented and inconsistent even after the creation of the central bank’s Asset Management Company (VAMC), according to Le Dang Doanh, former head of the Central Institute for Economic Management, who criticized the effort during a weekend forum in the northern province of Ninh Binh.

“There’s no actual money changing hands here; there’s not even an actual framework for the sale of the bad debt; so the blood clot that is Vietnam’s bad debt just sits there blocking the flow of credit,” Doanh said during the Autumn Economic Forum held by the National Assembly’s Economics Committee which serves as a kind of macro-economic symposium for officials and insiders.

The VAMC, also known as the “bad debt bank,” opened in July of 2013 as part of the government’s plan to tackle an estimated VND140 trillion (US$6.6 billion) worth of bad debts that had stymied lending and dragged the economy into its most severe slump in at least a decade.

Banks with bad debts of 3 percent or more were required to sell them to the VAMC for special bonds redeemable for loans from the State Bank of Vietnam.

Economist Truong Dinh Tuyen said the economy is still struggling with sluggish consumption as the bad debts continue to linger.

“Money has not been able to find way into the economy, which is recovering very slowly,” Tuyen said.

He said most local businesses have given up.

Dr Tran Du Lich, a member of the Economics Committee, said indebted companies haven’t been able to stand back up yet.

Lich said the problem would be easier to solve if the VAMC had greater capital than its current VND500 billion.

He said it would also be better if the VAMC could sell bad debts to private investors or on the stock market.

“There needs to be a flow of money from outside the banking system,” Lich said.

He said the longer Vietnam’s bad debts remain unresolved, the bigger they will grow and threaten the stability of the commercial banking system.

Economists at the forum also called for less government control over the economy, strong reform at state-owned enterprises, and better use of technology.

Dr Tran Dinh Thien, head of Vietnam Economics Institute, said Vietnam’s economy is still heavily dependent on natural resource extraction.

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