State management needed to tackle bad debt
Vo Tri Thanh, deputy director of the Central Institute for Economic Management (CIEM), talked to the Daily over matters related to the handling of bad debt. Excerpts:
The Saigon Times Daily: Many bad debt ratio figures have been released recently. How do you explain these numbers?
- Vo Tri Thanh: Vietnam recently has released three bad debt ratios, 3.2%, 10% and 4.15%. The first, 3.2%, was released late last year after the central bank reviewed reports of commercial banks. The second, 10%, is what the central bank’s governor reported to the National Assembly following inspection results in June. This number is higher than the figure announced by the central bank, 6-7%, earlier this year. The last one, 4.15%, is the most recent report of the central bank. However, I have heard the latest number of 8.6% from the National Assembly according to a report of the central bank’s inspectors. Besides, international financial institutions have supposed bad debt ratios three or four times higher than what the central bank has publicized. For example, Fitch predicted the ratio at 13% late last year.
As an economic expert, what number do you believe in?
- The total outstanding loans of Vietnam are around US$130 billion now. For the ratios of 8.6% or 10%, bad debt will be around US$11-13 billion. Debt in groups 4 and 5 is the most worrying, accounting for 40%, or around US$5 billion. I think the numbers are closer to reality as they are equivalent to the VND100 trillion the central bank needs to tackle bad debt. But I’m not sure that the figures are absolutely correct.
Establishment of debt trading companies is drawing much dispute. What is your take on this?
- Defining a bad debt ratio is very important to find out working forces to handle debt. The force does not necessarily belong to the State and it is possible to mobilize from other sectors. However, the State certainly should intervene to create a motive. Experiences from the U.S. and Sweden show that bad debt should be tackled by State money. In addition, the principle in talking about bad debt is that the boss should bear the consequences, deducing for risk provision or evaluating debt. The bigger the debt, the lower the prices and bigger discounts are.
It is necessary to follow basic principles in handling bad debt. The institution handling bad debt should play a large State role and have special powers as it has to solve debt quickly and resolvedly. It should also have a special structure with support from experts to evaluate debt prices close to market prices and prevent group interests. Besides, bad debt should be liquid.
Where should the institution belong to?
- The best thing is that this institution is under the Government and the Government appoints the central bank as its representative. I don’t think that the institution would be qualified enough to know all matters of banks if it is under the Ministry of Finance. Tackling bad debt is urgent. Japan provides a good lesson. In the late 90s, Japan spent many years arguing on why State money was used and why taxes were used. As a consequence, bad debt was soaring. Besides, Japan was wrong for setting high prices for bad debt. Therefore, it had to suffer a long crisis after that. I think we should learn from that. I’d like to stress the important role of the State in handling bad debt. Let’s take a look; ask private enterprises whether they want to buy bad debt, and how many of them are willing to take the job?
Reported by Tu Giang