DATC struggles to get the job done

Based on DATC figures, accumulated from 2007 to the end of last year, DATC had purchased debts for the restructuring of 72 enterprises in debt, of which 44 enterprises’ restructuring was completed and 28 in progress, with a total book value of VND6,256.069 billion ($30 million).

DATC is a fully state-owned enterprise under Ministry of Finance’s management and is the only state-owned unit that has the main function of purchasing to settle NPLs and assets of enterprises, facilitating enterprise restructuring.

Pham Manh Thuong, deputy director of DATC, said in overall assessment, DATC had done well in handling of bad debts in association with enterprise restructuring.

“However, the NPLs purchased and handled by DATC had not been of large values, while credit institutions’ NPLs seem to have rapidly increased during recent times,” said Thuong.

As of May 31, NPLs reported by credit institutions were worth VND117,000 billion ($5.6 billion), accounting for 4.47 per cent of total loan outstanding balance.

According to Thuong, one of the main reasons for DATC’s inefficiency was DATC currently had two conflicting objectives, including assisting SOE restructuring and making profit.

In practice, the purchase and sale of NPLs, particularly NPLs of SOEs was very risky because these debts were of bad nature.

Moreover, despite the alarming NPL situation, the banks have not been under pressure to transfer or sell NPLs to DATC because they have not been officially requested to do so.

“Normally, the banks do not want to sell their collateralised NPLs or recoverable debts. Banks would not want to sell NPLs at a value less than their book value because they will have to record such loss immediately,” said Thuong.

Pham Quyet Tien, deputy director of Department of Enterprise's Finance, said to develop mechanism for NPL disposal, it was necessary to strengthen the capacity of DATC, encourage debt trading between SOEs, commercial banks and DATC, increase the scale and improve financial and governance capacity of DATC.

To enhance NPLs disposal, the MoF of Vietnam and the Japan International Cooperation Agency (JICA) launched this month a workshop on Japan’s experience sharing on NPL disposal in SOE reform.

“It is also important to get the help of JICA including experiences in enterprises’ debt handling, advising on policies and mechanism, resource assistance and organising implementation and supervision mechanisms,” said Tien.

Nagase Toshio, senior representative of JICA Vietnam Office, said it took Japan 10 years to tackle such bad debts. From Japan’s experiences, collaboration and coordination among related agencies was crucial for the success of NPL disposal.

The MoF and JICA will extend their cooperation until March 2013, and look forward for next cooperation afterwards with focus on SOE reform and bad debt disposal, among others.