The bank continued to propose to quickly legalize and securitize in handling bad debts. Photo: Internet

Declining confidence affects debt repayment commitments

In a report at the recent banking industry review conference, Mr. Pham Duc An, Chairman of the Board of Directors of Bank for Agriculture and Rural Development (Agribank), said that the Bank had successfully developed and implemented a restructuring plan associated with bad debt settlement for the period 2016-2020. The outstanding results were that profit before tax increased by over 200%, bad debt decreased from 8.1% to 1.86%, and the quality of management and administration was improved. Therefore, Agribank has developed and submitted to the State Bank for approval a restructuring plan associated with bad debt settlement for the period 2021-2025.

However, in the current context, leaders of one of the "big four" banks are concerned about the problem of controlling bad debts.

According to Mr. Pham Duc An, in the context of domestic and international macroeconomics facing many difficulties and disadvantages like today, enterprises operate moderately, production scale is narrowed, inventories are high, revenue sources are exhausted, difficulties in repaying bank loans lead to an increase in bad debts though the State Bank has a debt restructuring mechanism, keeping the debt group intact.

“In fact, the bad debt ratio of Agribank as of June 30, 2023 has increased to exactly the same time as the end of the restructuring for the 2016-2020 period and the pressure to increase in the coming time is very great”, said the Chairman of Agribank's Board of Directors.

Pham Nhu Anh, General Director of Military Commercial Joint Stock Bank (MB), shared that real estate plays an important role in economic development, greatly affecting other industries, so MB spends about 20% of its credit limit  to finance this field.

In the first six months of 2023, MB has granted about VND 147,000 billion of outstanding credit for real estate, up 4.2% compared to 2023, with 80% of real estate loans being loans to individual customers to buy houses, the rest of corporate customers have outstanding loans of about VND 31,600 billion, accounting for about 6% of MB's total outstanding loans.

Although there has been a close direction from the Government to remove obstacles for the real estate market, Mr Anh said that the progress of the settlement is slow, especially in terms of land valuation and planning approval, there are problems with authority, order and calculation methods in localities. For corporate customers who are investors, it is not possible to complete the project according to the expected schedule due to legal problems, difficulties in deploying capital, pressure on debt and bonds due to large payments, decline in revenue, and pressure on homebuyers to return products.

"For individual homebuyers, in addition to the decrease in revenue to repay the loan, the project's legal problems also cause loss of confidence for homebuyers, delay repayment, and affect the bank's credit quality," said MB's General Director.

Needing to regulate the right to collect debt

Mr Nguyen Quoc Hung, General Secretary of the Vietnam Bankers Association, suggested that the Ministry of Finance coordinate with relevant ministries and sectors to build a legal framework for debt securitization, issue guidance on bad debt valuation through Vietnam's valuation standards in accordance with the Law on Prices, thereby forming a debt trading market.

On the legal corridor for bad debts, Mr. Pham Nhu Anh suggested the National Assembly and the Government legislate regulations on handling bad debts and handling collaterals to create a legal corridor for credit institutions to deploy safe and effective debt collection.

According to MB's leader, the authorities should consider a mechanism that allows "transferring the whole or part of a project when a certificate is obtained or a decision is made on land allocation or land lease" to create conditions for the bank to handle bad debts for unfinished projects and help increase housing supply.

Sharing more about solving problems in dealing with bad debts, Mr. Nguyen Duc Vinh, General Director of Vietnam Prosperity Commercial Joint Stock Bank (VPBank), said that it is necessary to have policies to protect investors, the rights and interests of the bank, and to strengthen the healthy operation of the bank.

“Lenders are taking the most risks, management agencies need to have regulations on debt collection rights and debt handling rights. The bank has the right to claim debt, the borrower must be responsible for repaying the debt,” said VPBank's CEO.

In addition, according to Mr. Tu Tien Phat, General Director of Asia Commercial Joint Stock Bank (ACB), only reducing lending interest rates can ensure credit growth, reduce the risk of bad debts arising, maintain long-term relationships with borrowers and especially contribute to supporting people and businesses, promoting the development of the domestic economic sector.