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Banking & Finance

World Bank Group supports tackling NPLs

Released at: 16:33, 27/09/2017

World Bank Group supports tackling NPLs

Photo: Quang Huy

Conference held in Hanoi on September 26 to examine task of resolving bad debts.

by Quang Huy

With support from the Swiss State Secretariat for Economic Affairs (SECO), the World Bank Group (WBG) together with the State Bank of Vietnam (SBV) took another important step towards resolving bad debts with an international workshop in Hanoi on September 26.

One-hundred and fifty Vietnamese policy makers and international as well as domestic experts, including private sector representatives, gathered together to exchange experience in the recognition, management, and resolution of non-performing loans (NPLs).

Recognized as one of the world’s fastest-growing economies, Vietnam’s banking system has moved to tackle NPLs over the last few years. The implementation of the “Restructuring the System of Credit Institutions for the 2011-2015 Period” scheme issued under Prime Ministerial Decision No. 254 in 2012, including the formation of the Vietnam Asset Management Company (VAMC) in 2013 to acquire NPLs, and subsequent legal and regulatory amendments to bank restructuring, signal Vietnam’s determination to tackle NPLs and stabilize the financial sector.

VAMC CEO Mr. Doan Van Thang listed a number of approaches to NPL resolution the company had employed to some degree of success. Since its formation, VAMC has successfully purchased some 26,110 NPLs from 16,197 institutions using special bonds. Most notably, in 2017 it managed to repossess the Saigon One Tower in Ho Chi Minh City from a number of customers whose total outstanding debts had accumulated to more than $311.8 million.

While NPL resolution has seen positive progress, outstanding and potential NPL volumes in Vietnam remain high, presenting risks to the safety and efficiency of financial institutions. Moreover, the regulatory framework on the resolution of NPLs and secured collateral remains ineffective.

“Banking sector reforms are fundamentally important for Vietnam to ensure the system’s capacity to serve the economy,” said Dr. Jennifer Isern, WBG’s Finance and Markets Practice Manager for East Asia and the Pacific. “We are committed to working with Vietnam on solutions suitable with the country conditions, especially with regards to regulatory and supervisory frameworks, sound legal environments and judicial systems, and efficient NPL markets.”

In particular, the one-day workshop focused on the recently approved Resolution No. 42, which aims to improve the regulatory framework on NPLs and secured collateral resolution as well as develop the NPL market by addressing the issues of eligible debt buyers and land titles.

Policy makers also learned about European, Indian and Malaysian experience in resolving NPLs and how such lessons, in relation to governance and risk management, could be replicated in Vietnam. Private sector perspectives on several SBV initiatives to diversify NPL disposal options through the development of markets for distressed assets, including sales of NPLs to investors, were also examined.

“With experience in advising governments on resolving bad debts in emerging markets, we are working with stakeholders here in Vietnam on several different levels to address this issue,” Dr. Isern said. “The successful management of NPLs in Vietnam is essential, while remaining vigilant over NPL flows, strengthening lending practices, and financial sector oversight to prevent an accumulation of NPLs.”

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