VINACHEM

Slow settlement of bad debt will affect economic growth, so the State budget should be used to step up the settlement of bad debt, said Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Program, at a conference in HCMC.

Speaking at the conference on Vietnam’s economic prospects held by HSBC Vietnam and the Hong Kong Business Association in Vietnam on Tuesday, Thanh said Vietnam is facing a slew of short-term challenges, including inefficient banking operation and bad debt.

Reports showed the bad debt ratio has edged down over the past five years. In reality, bad debts have stayed high if debts sold to Vietnam Asset Management Company (VAMC) and those recorded in banks’ assets are taken into account. Besides, credit has grown fast but many loans are used to roll over debts.

To put the settlement of bad debt on fast track, the Ministry of Planning and Investment early last month announced a draft scheme on economic restructuring in 2016-2020. In the scheme, the ministry proposed the Government use its budget to cope with part of bad debts.

Not many threw their weight behind the proposal but Thanh said the State budget can be used to handle bad debt. He pointed out many bad debts are reported by ailing banks which were acquired by the State Bank of Vietnam (SBV) for zero dong.

The State is the owner of those banks, so it must deal with bad debts, Thanh said.

Lenders wanted to earmark their future profit to settle bad debt but this has not been translated into reality over the past five years given their low profit. Meanwhile, if bad debt is not handled for a long time, it would put a dampener on economic growth.

Thanh said investors would never take over banks with a high debt ratio and a lack of transparency.

Thanh said market watchers are waiting for the Government’s next moves to restructure the banking system.

Huge public debt would challenge Vietnam in the medium term. The nation’s public debt is approaching the ceiling of 65% of gross domestic product (GDP) set by the National Assembly. If it soars to 80-90% of GDP by 2020, this would pose high risk.

The Government should cut public spending and tighten expenditures of central and local governments to reduce public debt. - VNN