Dealing with bad debts requires a large amount of money but this is not a decisive factor.
Illustrative photo - Source: VOVNews
In response to the idea that if the State spends about VND100 trillion to tackle bad debts, the problem will be solved, Pham Manh Thuong, Deputy General Director of the Debt and Asset Trading Corporation (DATC), says it will depend on how to get to the root of the matter.
He proposes the State set up a national debt settling organization as an intermediary tool for imposing effective sanctions against those businesses incurring bad debts and encouraging private investors to trade debts on a larger scale.
Thuong says the settlement of bad debts should aim not only to improve banks’ liquidity and stabilize their operations but also to help the indebted businesses restore their production and pay their debts.
Using banks to clear the books is not a cure-all when it comes to dealing with bad debts, he argues.
With total bad debts worth VND100 trillion, he suggests, the State would rather settle one third of them only.
Bad debts are of different sorts and need to be analysed independently. They usually account for 20-30 percent of account outstanding (with mortgage loans) and 5-10 percent (with non-mortgage loans), Thuong says.
When buying bad debts, the State can issue 5-7 year bonds for banks selling their bad debts in addition to paying in cash. These bonds can be rediscounted when necessary.
Thuong also insists on setting up a fund for deal with bad debts and implementing the economic restructuring to affirm the State intervention in the issue. In his opinion, it will help improve public and investor trust and create a special resource of funding to deal with bad debts on a large scale.
According to statistics, State-owned enterprises (SOEs) owe 70 percent of total bad debts to commercial banks. Therefore, an effective settlement of bad debts will help restructure banks and SOEs at the same time.
The State should assign DATC to manage the fund, he says.
DATC will use the fund to buy bad debts before seeking the best ways to deal with them, Thuong says, adding that the Corporation will help potential businesses recover and stabilize their operations by restructuring their financial and operational management./.