Asia: Bad debt woes still plague Vietnam

Bad debts have been plaguing Vietnam’s economy since 2012 where it was estimated to be equivalent to 11% of the GDP, and mainly consisted of real estate mortgages. In an effort to consolidate Vietnam’s banking sector, the government set up its first-ever bad-debt bank – Vietnam Asset Management Corp (VAMC) in the following year (2013). VAMC has since rescued over 40 banks by buying out their bad debt ($12 billion), and managed to recover approximately 18% of the debts bought from troubled banks mainly through sale of collateral.

Despite the actions which have already been taken to combat bad debt, issues remain for Vietnam. As a result, the State Bank of Vietnam (SBV) has decided to draft a new law. Strategies to allow weaker banks to file for bankruptcy are pivotal additions to the drafted law to help resolve bad debt. Currently, Vietnam is forecasted to require $25 billion to clean bad debt off their books, equivalent to 13% of the country’s GDP.

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