Buying and selling bad debt at the bank, how?

Kiểm soát tối đa nợ xấu song hành với mục tiêu tăng trưởng tín dụng tại các ngân hàng. Tuy nhiên, tại Việt Nam, khi nợ xấu đang là một ẩn số trên thị trường mua bán nợ thì một định chế tài chính như Công ty Mua bán nợ và tài sản tồn đọng của doanh nghiệp (DATC) tiếp cận như thế nào?

Maximum control of bad debt in parallel with credit growth target at banks. However, in Vietnam, when bad debt is an unknown number in the debt trading market, how does a financial institution like the Debt and Asset Trading Company (DATC) approach?

Transparency of bad debts

According to State Bank Governor Nguyen Van Giau, the NPL ratio of the Vietnamese banking system as of the end of 2010 is about 2.5%. The Governor also said that the entire outstanding balance of the banking system to Vietnam Shipbuilding and Industry Group (Vinashin) is just under 26 trillion dong and is currently restructuring 16 trillion dong. This amount has not included in bad debt, and if included in it only increased by 0.7%, Mr. Giau explained.

Arising bad debts is indispensable in the business in general and the banking sector in particular. Commercial banks have struggled to deal with bad debts. A few years ago, an opinion of Dr. Vu Viet Ngoan - General Director of the Bank for Foreign Trade of Vietnam (VCB) warned: “NPLs are a headache for most Asian banks and Vietnamese banks are no exception ”. In the general context of the Asia-Pacific bank, VCB has conducted equitization as the only and most reasonable option to restructure this credit institution.

According to Mr. Philip Paterson, Director of ANZ's corporate customers and financial institutions division, bad debt comes from many reasons. The biggest reason is that many businesses suffer losses, leading to cash flow difficulties or loss of solvency. Therefore, the partners having business relations with these enterprises suddenly have to incur more bad debts.

The Government of Vietnam has approved a comprehensive reform program with the Vietnamese banking industry with the following orientation: Improving minimum capital adequacy ratios as required by international payment standards; Quickly handle bad debts, improve asset quality; Strengthen capacity, apply international standards on accounting and supervision and banking management; restructure the organization and gradually expand the financial market according to international commitments.

Promptly dealing with bad debts, the first condition requires banks to be transparent in their operations, including their bad debt information. This is the first step in creating a bad debt trading market in Vietnam, promoting financial institutions to participate in financial health. In the world, the market for buying and selling bank bad debts has developed quite sporadically. These countries have bad debt trading companies that are very professional.

There is a precedent that exists for many years, hindering the process of handling bad debts that banks' bad debts are always unanswered questions. While auditing companies and international financial institutions perceive that the bad debts of Vietnamese banks are very high, the published credit institutions themselves are always low. Why is there this inconsistency, if not the lack of transparency, to unify information, besides the difference in classification criteria? Therefore, the transparency of bad debt information is considered the key for creditors and creditors, the role of intermediaries to meet and find solutions.

The direction of a financial institution

Handling bad debts through debt trading or debt trading associated with debt restructuring is a risky business activity, but the reality shows that it is possible to build criteria to control and manage risks. this. However, the important thing is that economic efficiency must be on top, all business plans for debt trading and corporate restructuring must be carefully studied to ensure the highest efficiency, not to happen. business status continues to operate ineffectively. It can be seen that the conversion of debt into capital contribution associated with corporate restructuring is a new direction in thoroughly handling bad debts and contributing to the health of the financial situation of the economy in general and of creditors. in particular. In Vietnam, DATC has successfully implemented this activity.

After purchasing debt from creditors, DATC negotiates with owners and other shareholders of the enterprise to convert debts into contributed capital (for SOEs carrying out equitization, DATC must participate in the share auction according to regulations. ). After becoming a shareholder, DATC implemented corporate restructuring solutions such as partial write-off of debt and interest, postponement of debt repayment, change of repayment period, market support, governance, and financial support. such as loans, guarantees ... to recover from business losses. Enterprises that have been successfully restructured by DATC so far have made profitable business operations, have paid off all budget debts, social insurance debts, paid most of their debts to DATC, especially some units have achieved interest rates. return on capital is about 30%.

The difficulty of DATC when accessing bad debt from banks lies in that: banks give general information and DATC is almost uninvited. In some cases, DATC is mainly used to "get price", then sell to other partners. This is seen as a slate in economic transactions between a debt trading company and the creditor side. To thaw, in addition to cooperation to understand each other.


                        Corporate Finance Magazine April 2011

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