Breaking impasse in tackling bad debts

Why has VAMC experienced such a slow pace of sales?

I have taken part in a number of meetings and workshops and heard this question every time. Until present, there is still no answer to the question how to sell the bad debts and to whom. Even those who had claimed about the urgent need to quicken the whole process have failed to give a smart response on how to sell the debts as selling debts (particularly bad debts based on collateral) is being obstructed by legal documents which do not comply with market rules.

What is the bottleneck to the process?

Debts and bad debts are all commodities. In the market economy, we can sell everything.

However, in Vietnam, the debt trading market is still in its infancy and regrettably, what has obstructed the formation of the market is non-market factors.

The bottleneck here are the regulations related to civil transactions, asset trading or creditor rights which have proven very complex, cumbersome and largely fail to match market rules.

For example, banks could do nothing with the collateral associated with bad debts if the debtors lack goodwill in co-operating with the banks in these cases.

What must we do then?

First and foremost, it is essential to remove the bottlenecks in terms of current regulations on civil transactions, asset trading, creditor rights and the like. The next step is tackling collateral based on international practices. So when a loan becomes due and the borrower defaults, the collateral belongs to bank and the bank has the right to do whatever they want with the asset.

In this case, the debt must be regarded as a commodity that follows market rules. If banks sell a distressed asset at below its original value in order to collect on the debt, they must not be accused of showing a negligence or face charges of ‘economic mismanagement’.

How has VAMC tackled the bad debts it has bought in the context the problems that have yet to be resolved?

At present, VAMC sells bad debts on a case by case basis under guidance from the State Bank, but this is only a temporary solution. Over the long-haul, suitable policies and mechanisms must be in place to form a debt trading market. Only by doing so, can we tackle the billions of dollars of bad debts.