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Experts call for debt market

Update: December, 12/2012 - 11:05

 

An Agribank branch in the northern province of Lao Cai. The Debt and Asset Trading Corporation under the Ministry of Finance and about 20 small-scale companies affiliated with commercial banks currently trade in debt. — VNA/VNS Photo Tran Viet
HCM CITY (VNS)— Viet Nam should seriously consider setting up a market for the sale and purchase of debts, several experts said at seminar held late last week.

The seminar was jointly organised by the Ministry of Finance and the University of Marketing and Finance (UMF).

Debts are usually purchased at a fraction of their original value by firms that collect them on their own or farm it to other institutions in various forms.

Dr. Dao Huu Huan of the UMF said the purchase and sale of debt can be seen as a solution to financial problems facing many enterprises.

He said companies specialising in debt management and asset exploitation would buy the debts.

This move would be of great significance since enterprises would face a deadlock or go bankrupt if they are not able to settle their bad debt problem, Huan said.

Experiences from many countries show that trading in debt can protect the country from a crisis, stabilise the financial situation and improve the strength of financial institutions, he said.

Bad debts have been rising in Viet Nam and since there was no outlet for them, setting up a market is an urgent task, Huan said.

In fact, there has been no consensus among policy makers, commercial banks, the central bank and some international organisations on what the exact amount of bad debt is at present.

A report tabled by Prime Minister Nguyen Tan Dung at the fourth session of the National Assembly, said bad debts at local credit institutions have tended to increase rapidly in the last six months of 2011.

A recent central bank inspection estimated the bad debt ratio in Viet Nam at 8.82 per cent of the economy's total credit, which was VND250 trillion (US$12 billion) in 2011.

At present, Viet Nam has the Debt and Asset Trading Corporation (DATC) under the Ministry of Finance and about 20 small-scale companies that belong to commercial banks.

However, these institutions have neither the financial capacity nor the tools to effectively handle the large volume of bad debts.

DATC director Pham Manh Thuong said that the company by itself had a very modest capital base so it would be very difficult to settle such a large volume of bad debts in a short time.

The 20 debt management and asset exploitation companies are in the same situation, although the commercial banks have engaged in some mutual selling and buying of bad debts, said Pham Huu Hong Thai, UMF deputy director.

Nguyen Thi Hai Binh of the Institute of Financial Strategies and Policies said that to develop a debt market, Viet Nam needed to perfect a legal framework to ensure that debt settlement, including buying and selling of debt, would happen in line with the market principles.

Binh also stressed the need to further develop the local capital market and the mergers and acquisition market, and encourage the participation of international investors in debt settlement.

Thuong said the trading in bad debts was a positive measure since they are also commodities.

However, it was necessary to have strict regulations that force commercial banks to actively settle bad debts instead of letting them manipulate them in whichever way they want, he said.

He also said that many investors have expressed interest in trading in bad debts, but there were several legal obstacles in doing so at present. — VNS

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