SBV prods SOEs to clear bad debts

In a document sent to the government, Nguyen Dong Tien, deputy governor of the central bank, described the difficulties in collecting loan repayments from state-owned enterprises (SOEs), including those to be equitised.
“This issue will lead to increases in the bad debt ratios and credit risk ratings of local banks, especially among state-owned commercial banks,” said Tien.
The central bank issued decision No. 493 in April to classify debts in line with international standards, which requires all banks to re-evaluate their debt ratios. Meanwhile, SOEs to be equitised are ignoring loans in order to restructure their organisation, leading to these loans being classified as bad debts.
He said the central bank has urged the government, the three ministries of finance, justice, and natural resources and environment, and authorities at localities, to extract loan repayments from these corporations.
The Ministry of Finance (MoF) has been requested to change its regulations to include the treatment of state-owned corporations, which often ignore their responsibilities and duties to repay loans to commercial banks.
The suggestion comes following the failure of current regulations to deal with SOEs defaulting on loan repayments, including decree No. 187, which controls the equitisation of SOEs and the government’s decision on the merging, dissolving and the bankruptcy of corporations.
Domestic banks have also been forced to deal with SOE equitisation and bad debts passively because a recent MoF circular from the membership of the steering committee for corporate equitisation did not include any representatives from domestic banks.
“There are no regulations on the responsibility of equitised corporations to repay overdue debts and loans borrowed by former corporations,” said Tien. “And some provincial and municipal authorities are cancelling debts to increase the value of corporations during the equitisation process.”
“Some local authorities have also violated merger regulations to allow bankrupted corporations to merge with other state-owned firms facing financial difficulties in order to pay back loans after the merger,” said Tien.
The SBV move to improve bad debt repayments is expected to satisfy the complaints of local commercial banks, who have been experiencing difficulties collecting loan repayments.
Pham Huy Hung, general director of Incombank, said his bank urged the SBV to ask the government to have clear-cut debt policies regarding SOEs involved in the equitisation process, as banks are not informed which companies will be equitised, which makes it difficult to collect loan repayments and decide on credit risk assessments.
Hung said the bank estimated its bad debt on equity ratio is around 4 per cent, overdue debt on equity stands at 2.7 per cent and the amount of outstanding debt is valued at VND540 billion ($34.6 million).
“Incombank has the lowest ratio of capital adequacy among state-owned commercial banks and we urge the government to change the value of SOE debts to equivalent shares, once corporations are equitised,” said Hung.