More than 60 percent of bad debts that Vietnam has sucked out of its banking system are real estate mortgages, while the country's bad-debt bank has recovered nearly a fifth of the toxic debts, according to official data.
Vietnam has been restructuring a banking sector saddled with bad debts, which had been cut to 2.46 percent of total outstanding loans in November 2016 from 17.2 percent in September 2012.
In 2013 the government set up its first-ever bad-debt bank, called the Vietnam Asset Management Corp (VAMC), to help consolidate the country’s fragmented banking sector.
VAMC, run by the central bank, has since bought VND282 trillion ($12.4 billion) of bad debts to rescue 42 banks from either bankruptcy or net losses, based on its recently released data.
As much as 62 percent of the toxic debts, equivalent to VND268.8 trillion, which the VAMC has bought are real estate mortgages, the Saigon Times cited the data as saying.
The bad-debt bank has also recouped 17.8 percent of the toxic debts it bought from troubled banks, mainly by selling properties originally used as collateral.
Overhanging bad debts have been a burden on Vietnam’s economic growth since 2012 when total bad debts, mostly in the real estate sector, reached VND280 trillion ($12.5 billion), equivalent to 11 percent of gross domestic product by then.
“Higher credit costs make the economy suffer,” said Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission, implying that even though those costs are incurred by banks, most companies in Vietnam that remain heavily dependent on bank loans feel a significant impact.
Apart from the establishment of the VAMC, the central bank has taken several measures to ensure safety and stability in the banking system, including the buy-out of three troubled lenders Global Petro Bank, Vietnam Construction Bank and Ocean Bank.
Vietnam is forecast to need $25 billion to clear toxic debts off bank books, equal to 13 percent of the country’s gross domestic product, Phuoc told a National Assembly meeting late last year.