World Bank Group Supports Vietnam to Tackle Non-Performing Loans, Improving Economic Prospects

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The FINANCIAL — The World Bank Group is supporting Vietnam to make further progress in resolving non-performing loans, strengthening the banking sector to ensure efficient and effective allocation of capital for economic growth and job creation.

While being recognized one of the world’s fastest-growing economies, the country’s banking system has positively moved to tackle non-performing loans (NPLs) over the past few years. The implementation of the Scheme “Restructuring the system of credit institutions for the period 2011-2015” issued under the Prime Minister’s Decision No. 254 /QD-TTg dated March 01, 2012, including formation of the Vietnam Asset Management Company (VAMC) in 2013 to acquire NPLs, and subsequent legal and regulatory amendments to banking restructuring signal Vietnam’s determination to tackle NPLs and stabilize the financial sector. While NPL resolution has made positive progress, outstanding and potential NPL volumes remain high, imposing risks on financial institutions’ safety and efficiency. Moreover, the regulatory framework on resolution of NPLs and secured collateral remains ineffective.

“Banking sector reforms is 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.”

With support from the Swiss State Secretariat for Economic Affairs (SECO), the World Bank Group (WBG) together with the State Bank of Vietnam took another important step towards bad debt resolution today with an international workshop in Hanoi. About 150 Vietnamese policy-makers and international as well as domestic experts, including private sector representatives, gathered to exchange cross-country experiences on the recognition, management and resolution of NPLs, according to the World Bank.

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In particular, the one-day workshop focused on the recently approved Resolution 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 learnt about European, Indian and Malaysian experiences 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 to resolve bad debts in emerging markets, we are working with stakeholders here in Vietnam on several different levels to address this issue,” said Dr. Jennifer Isern, WBG’s Finance and Markets Practice Manager for East Asia and the Pacific. “Successful management of NPLs in Vietnam is essential while remaining vigilant to NPL flows, strengthening lending practices and financial sector oversight to prevent an accumulation of NPLs.”

 

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