Banks struggle to sell collateral to recover unpaid loans

BIDV, Vietnam’s largest state-owned lender by assets, announced in April the auction of land use rights and assets attached to the unfinished Kenton Node apartment project in Ho Chi Minh City, worth a total of VND7.84 trillion ($336 million).

The property, worth 58 percent of the project’s value, had been put up as collateral for loans from state-invested lenders BIDV, MSB, and PVComBank, with BIDV’s share being VND4.55 trillion ($195 million). The bank has been trying to auction off the project since 2017, but is yet to find a buyer.

In May, BIDV made four rounds of offers on 55 apartment units in HCMC’s District 7, worth between VND2.08-5.26 billion ($225,200) each, making a 5 percent reduction in price each time, but to no avail.

Last month, the lender offered, for the 30th time, to sell land, factories, machinery related to a textiles enterprise in northern Nam Dinh Province for VND86 billion ($3.43 million). It had made continuous reductions in the asking price for the assets, which was double the current amount when BIDV made its first offer in early 2019.

Similarly, Vietcombank, the country’s top state-owned lender by market cap, has recently put on sale property belonging to an agricultural firm in the central province of Lam Dong. The sale, made for the second time now, includes land, factories and machinery of the debtor worth VND8 billion ($346,000).

Its branches across the country are also offering to sell two cotton production facilities of Vinh Phuc Textile JSC worth VND2.8 billion, as well as a 52-ton ship, machinery and equipment of the bankrupt Saigon Offshore Fabrication and Engineering Ltd., worth VND20 billion, for the second time.

Many other banks are also trying to sell assets pledged as collateral, going as low as passenger cars, with private mid-sized lenders such as TPBank, SeABank, VIB, and Techcombank having announced the sale or auction of five-seater cars to recover debt.

According to economist Nguyen Tri Hieu, the main reason for the failure to sell off high-value assets to recover bad debt is that banks are setting high prices. With the Covid-19 pandemic adversely affecting business this year, banks will find it even more difficult to sell off land, factories or cars when businesses are trying to minimize investments and expenses amid the economic slowdown.

And because the banks will reduce prices if they cannot sell the property, people decide to wait for the prices to fall further, he added.

Banking and finance expert Can Van Luc added that with Covid-19 slowing down the real estate market, the limited number of buyers with enough capital as well as desire to buy such assets has made things even more difficult for banks.

Banks are also constrained by regulations that only allow them to reduce at most 10 percent of an asset’s asking price each time they make a new offer, and the government should abolish this rule, Luc said, adding that this would help avoiding wastage of thousands of billions of VND while the properties remain dormant.

Several experts have also said that National Assembly needs to quickly resolve legal problems related to taxation and real estate conveyance so as to facilitate transfer of mortgaged property.

Vietnam’s banks had begun to sell off mortgaged assets in haste since early 2019 in order to prepare for the compulsory buyback of bad debt sold to state-owned Vietnam Asset Management Corp (VAMC) in 2013.

VAMC, run by the central bank, has bought a total of VND282 trillion ($12.2 billion) worth of bad debt to rescue 42 banks from either bankruptcy or net losses back in 2013, as five-year bonds. Once the bonds mature, the banks will have to buy back any bad debt VAMC has failed to recover.

And because banks will have to sacrifice a portion of profits to set up as bad debt reserves, they try to resolve their overdue debts as soon as possible by liquidating assets put up as collateral, banking executives told VnExpress last year.

In 2019, the banking sector’s internal bad debt ratio, which excludes debts sold to VAMC, was 1.89 percent, in line with the State Bank of Vietnam's target of 2 percent.

But the central bank's latest report has forecast that Covid-19 is expected to affect the quality of VND2 quadrillion ($86.52 billion) worth of debt issued by Vietnamese banks, accounting for 23 percent of the banking system’s outstanding debt.