Dealing with bad debts: a thorny problem

The project to restructure State-owned enterprises (SOEs) is aimed at settling all bad debts by 2015, but this is a hard nut to crack.

Are debt trading companies an effective tool?

Hoang Tran Hau, Deputy Director of the Academy of Finance, says debt trading companies are one of the important tools for dealing with bad debts of SOEs, but these companies can not clear all.

In Japan, debt trading companies can only handle 10 percent of bad debts, he cites, adding that this small figure can encourage businesses to develop.

In Vietnam, the Debt and Asset Trading Corporation (DATC) under the Ministry of Finance (MoT) is in charge of tackling the issue.

Despite some successful transactions, there remain doubts about its capacity.

Senior financial expert Dang Van Thanh says DATC is responsible for both trading debts as goods and dealing with debts to serve the restructuring of SOEs as assigned by the State.

However, with many SOEs still at a loss what to do, DATC is not ready for any strong action to deal with huge debts of 1,309 SOEs, Thanh says.

He cites another problem that is the lack of capital for DATC operation as expected. He proposes that the corporation mobilize capital by issuing bonds and using debts bought from SOEs to capitalize itself.

State capital is not enough for DATC to operate effectively, so it has to leverage up, he argues.

Challenges to debt trading

DATC Deputy CEO says Pham Manh Thuong there are 20 other debt trading companies in Vietnam. These companies are responsible for the management and settlement of parent banks’ debts. They are legally entitled to buy other banks’ debts but, in fact, no banks want to sell their debts to others.

Former Minister of Planning and Investment Tran Xuan Gia says asset pricing is another challenge to the equitization, restructuring and reorganization of SOEs.

Asset pricing should be done via public bidding or carried out by a reputable independent agency, he says.

DATC Deputy CEO Thuong says as there is not enough pressure to bear upon financial institutions to deal with bad debts, it sometimes takes from six months to a year to complete negotiations for debt trading.

He emphasizes the need to open the market for debt trading which he believes would make the settlement of bad debts and restructuring of SOEs more efficient.