Vietnam's bad debts under control, central bank says

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The State Bank of Vietnam has managed to keep bad debts in the banking system under 3 percent of outstanding loans so far this year, Deputy Governor Nguyen Thi Hong told legislators on Thursday.

Toxic debts in the banking system as of August 31 were reported at 2.66 percent, according to the central bank data.

During the January-August period, banks wrote off VND58 trillion in non-performing loans, official statistics show.

The specter of toxic debt has been looming over Vietnam’s economy since 2012 when total bad debts, mostly in real estate sector, hit VND280 trillion ($12.5 billion), equivalent to a staggering 11 percent of gross domestic product.

In 2013, Vietnam set up an asset management firm to buy bad debts from troubled banks. The Vietnam Asset Management Company (VAMC) since then has tackled with VND211 trillion or $9.4 billion of bad debts from the books of local banks, exceeding its initial target of VND200 trillion.

The fact is the risk still stays with the banks because the VAMC doesn’t actually buy those non-performing loans, it only houses them and helps banks restructure them.

Since 2014, the VAMC has only recouped about 7 percent of the bad debts worth of VND211 trillion, mainly by selling assets originally put up as collaterals for the unrecovered loans in the real estate sector, according to Chairman Nguyen Quoc Hung.

Evidently, lawmakers have reasons to worry about bad debts in the banking system even though Hong, deputy governor, assured that "most credit institutions have managed to bring down their bad loans to below 3 percent."

Phung Quoc Hien, vice chairman of the National Assembly, raised his concern about how the central bank will deal with the VND200 trillion in bad debts that VAMC has bought.

“Bad debts are still on the rise. I suggest [the central bank] check up on banks, review their lending activities,” said Hien.

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