Dr. Le Xuan Nghia, Deputy Head of the National Financial Supervisory Committee, says out of concern for bad debt many banks are hesitant to offer loans, despite the fact that businesses are running short of capital for their operations to make a profit. As a result, the number of companies going bankrupt has increased, from 3.07 percent in 2011 to 4.5 percent so far this year, he notes.
As a case in point, Dr. Nghia cites Japan’s bad debt crisis in the 1990s which hit around JPY2,000 billion. Instead of settling bad debts and focusing on capital construction, the Japanese government focused on public investment but failed to promote economic growth. It then recognized the bad debt issue as one of the main factors in preventing economic growth as bad debts reached as high as JPY40,000 billion. Its inappropriate solution resulted in 16 years of inflation and zero economic growth.
Dr. Nghia warns that Vietnam should learn from this lesson when it is also confronted with a high bad debt ratio.
He stresses the need for urgent measures to deal with the bad debt issue. Usually, he says, it will take commercial banks and local businesses at least five years to settle their bad debts but the national economy cannot wait that long to survive.
Dr. Nghia proposes two groups of measures to settle bad debts. The first group requires the State budget to inject cash into commercial banks so that they can offer loans to local businesses. However, if these banks do not strictly follow the Government’s guidelines, they will face risks, he adds.
The second but more practical one includes establishing a national debt trading company (AMC) that is responsible for purchasing bad debts from commercial banks at negotiated prices to boost the liquidity of credit institutions. The company will then auction off the debts or list them on the stock exchange to mobilize capital.
Although it is no easy task to run the AMC effectively, Dr. Nghia believes the Government will be able to handle the bad debt situation one way or another.
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