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It’s not easy to buy bad debts | Look At Vietnam

It’s not easy to buy bad debts

June 6, 2012
LookAtVietnam – Doubts have been raised about the feasibility of the
solutions to “lift the bad debts – the barricade – out of the rails to put the
credit through.”

The lending interest rates have been decreasing rapidly in recent days, but the
credit still gets stuck because of the bad debts.

Vu Viet Ngoan, Chair of the National Finance Supervision Council, said on Dau tu
that in the first five months of 2012, the credit growth rate was minus (-) 0.76
percent, while there is no possibility of obtaining high credit growth rate in
June.

“The targeted credit growth rate of 15-17 percent by the end of 2012 proves to
be impossible,” Ngoan said.

Meanwhile, General Director of Eximbank Truong Van Phuoc has informed that the
credit growth rate of the whole banking system by the end of May 2012 had
reached 0.2 percent.

The official figure about credit growth rate in the first five months of the
year has not released by the State Bank of Vietnam. However, it’s clear that the
lending has got stuck, which has worried commercial banks. Currently, most of
the bank profit comes from credit, while they cannot push up lending. This was
the hottest topic discussed as the meeting between G14 (the 14 most powerful
commercial banks in Vietnam) and the State Bank of Vietnam late last month.

Establishing a bad debt trade company is now considered one of the most
important tasks for now to settle bad debts. A Deputy Governor of the State Bank
said that the lending has got stuck because of the barricade, which is the bad
debt of commercial banks. Therefore, in order to settle the “traffic jam”, it’s
necessary to put bad debts aside.

This would be a “super company” with the total capital of 100 trillion dong,
which would enjoy more flexible mechanism than that of the currently operational
Debt and Asset Trading Company under the Ministry of Finance. Especially, the
company would not operate for profit.

A question has been raised that how to arrange the huge capital of 100 trillion
dong for the company.

Fiachra Mac Cana, a senior executive of HSC, a securities company, said on Thoi
bao Kinh te Vietnam that he does not think the government would inject such a
huge sum of money in the company as the stockholder equity. It is more likely
that the stockholder equity would be much lower than 100 trillion dong, while
the company would have to mobilize long term capital, maybe by issuing 5-10 year
bonds, to seek enough 100 trillion dong.

If this happens, then another two questions would be raised. The first one is
who would buy long term bonds to be issued by the debt trade companies and at
what interest rates. The second question is that what valuation method the
company would apply.

To answer the first question, the expert from HSC thinks that the bonds would be
sold to all subjects, both domestic and foreign institutions, while the State
Bank is likely to act as the final buyer. If the bonds of the debt trade company
are guaranteed by the government, they would also be bought by insurance
companies. It’s highly possible that the State would be the main buyer of the
bonds.

Meanwhile, as for the second question, the expert said it’s difficult to find
the answer.

Pham Hong Hai, Deputy General Director of HSBC Vietnam, said that to ensure the
effective operation of the government’s debt trade companies, the government
needs to finance the companies and gets ready to provide necessary support to
the companies. Besides, the capital market needs to operate well to facilitate
the debt valuation. It is also necessary to be sure that bad debts can be
liquidated, and that the debt trading companies operate in a transparent way.

C. V
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