Vietnam - Vietnam needs to form debt trading market: WB's chief economist

In the context of increasing bad debts, the creation of a debt trading market is an indispensable factor, according to Mr. Deepak Mishra, the World Bank (WB)'s chief economist.

He said that currently the state-owned enterprises (SOEs) accounted for up to 60% of total loans of banks and credit institutions. In which, the debts of these enterprises are making up to 70% of banks' bad debts.

So far, the total outstanding loans nationwide have been at about 2.4 million billion Vietnamese dong and non-performing loans accounted for 3.2%, equivalent to 76 trillion dong. According to the State Bank of Vietnam (SBV)'s statistics, of the total the bad debts, debts in category 5 (irrecoverable debts) accounted for nearly 50%, or about 38 trillion dong.

The acquisition and settlement of debts in Vietnam are currently mainly based on Debt and Assets Trading Corp (DATC) – 100% state-owned company under the Ministry of Finance, which is assigned to manage SOEs’ debts and assets as well as to assist the rearranging and ownership transferring process at these enterprises.

Data from DATC showed that till the end of 2010, the value of debts through debts and assets trading activities recovered by DATC reached 1.597 trillion dong, or 85.5% of the debt that DATC purchased and revenue from selling assets reached 464 billion dong.

This number is insignificant compared with the current debt market, but this will be the premise for the formation of the debt trading market. However, to date, the legal framework for DATC's business activities has been incomplete and still remained inadequate and limited.

Under corporate law, the state is the owner to grant chartered capital for DATC and DATC has civil liability for the scale of that capital. Assets (including commodities) are the property of enterprises, businesses bear civil liability with that entire property.

However, according to the Financial Policy Advisory Group, the owner also can deeply intervene into business activities of enterprises, especially in debt trading activities.

Proposing solutions for the debt restructuring, many experts said that the debts and assets that DATC is trading are commodities for business, so the creation of a debt trading market is an indispensable factor.

Debt trading market should have the participation of a number of state-owned debt trading companies and non-state economic organizations, of which the DATC will be the key unit in the model.

VietBiz24

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