Resolving the bad debt that is suffocating Vietnamese banks needs actions, not words, along with a US$25 billion budget, a top official from the government’s National Financial Supervisory Commission, said.

National Financial Supervisory Commission representatives were among the attendees at a conference held on Wednesday by the Vietnam Institute of Economics to discuss Vietnam’s need to clear itself from bad debt, and the challenges the country faces with its national economic reform plan.

Vietnam’s bad debt reached 2.58 percent of total loans, according to data released in June. However, industry insiders say the real figure may be much bigger.

“Many believe that the government should not be responsible for reform in the banking sector and instead should let those responsible for the bad debt bear the responsibility,” the commission’s deputy chairman Truong Van Phuoc said at the conference.

“We need to avoid this.  Dodging banking reform puts the economy even more at-risk.”

Phuoc elaborated that if the State Bank of Vietnam does not intervene in combating the country’s bad debts then lending interest rates will keep rising, further burdening local businesses and individuals.

“Lending interest rates are as high as 8 to 9 percent a year, yet inflation only reaches between 0.5 to 0.6 percent,” he said.

“The banking system’s return on equity ratio also dropped threefold, from 12 percent to 4 percent, while the return on asset ratio fell from 1.2 percent to 0.4 percent.”

Phuoc underlined that “these are the direct consequences of bad debt,” so the issue must be solved as soon as possible.

“We also need to acknowledge that we can only clear up our bad debt through real action, not just buzzwords,” he pressed.

The deputy chairman also added that solving debt issues are not the sole responsibility of the State Bank of Vietnam. “We need a new government-level committee to oversee the clean-up effort,” he said.

According to estimates by the National Financial Supervisory Commission, Vietnam will need some $25 billion to tackle bad debt.

Plans to reach the $25 billion mark mainly rely on sourcing capital from the loan loss provision, which means borrowers will bear the burden of heftier loan expenses, he added.

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