Bad debt problem going nowhere

Overshadowed by sour debts, credit growth contracted in the first five months despite banks’ mobilising rates pulled down quickly in the past months.

“”Credit growth contracted 0.76 per cent in January-May and June’s forecast is not so optimistic. The government just enacted a string of policies which were expected to help stir up capital demand. Therefore, credit growth will focus on the six or even five later months of this year,” said National Financial Supervisory Commission Vu Viet Ngoan chairman, adding that it would be almost impossible to reach the set target of 15-17 per cent credit growth for 2012.

Eximbank director Truong Van Phuoc put banking sector’s credit growth in the first five months at 0.2 per cent.

In fact, though the central bank was yet to make public January-May’s official credit growth, stuck credit flows made scores of firms go bust and why credit growth was the central point in a meeting between the central bank and 14 leading banks (G-14) in late May.

A series of measures were debated to remove barriers to credit growth such as further driving down mobilising and lending rates, banks getting State Bank refinancing to lend agriculture and priority areas, establishing a fund to lend purchases of low-cost housings or set up a company to trade in banks’ bad debts.  

A banks debt trading company reportedly has a scope of VND100 trillion ($4.7 billion) with more open regulations on bad debt purchases compared to those of Ministry of Finance’s Debt and Asset Trading Company (DATC) and wider customer ranges.

Former SBV chief Cao Si Kiem assumed the State Bank’s buying of banks’ bad debts was a crucial move, but prudence would be needed with each debt risk carefully appraised. 

“Giving birth to a bank debts trading company could help stimulate credit growth. However, this is only one viable solution, but that company itself could not tackle whole banking system’s bad debts,” Ngoan noted.

Ngoan said some countries had tough measures to address banks’ bad debts. Accordingly, the governments bought these toxic assets and restructured banking system just within several months.

HSBC deputy director Pham Hong Hai assumed bad debt trading companies could be operate efficiency if they had government support and the capital market was in a good shape to ensure accurate valuation of bad debts.

In respect to credit growth, economic experts proposed not loosening lending requirements to push up credit growth.

Ngoan suggested controlling credit growth at 1.5-1.8 per cent per month.

“Inflation might roar again in the following year if credit growth expanded more than 2 per cent per month,” cited Ngoan.