Vietnam proposes trillion dollar solutions for bad debts

Vietnam is seriously considering setting-up an asset management company capitalized at US$4.8 trillion.

The trillion dollar solution is made necessary because the country’s banks will need to pay some US$1.4 trillion annually to pay off its bad debts by 2015. The State Bank of Vietnam believes that it is necessary to set up an AMC as a subsidiary or a part of a commercial bank.

The AMC will help avoid the possible collapse of the banking system and would simultaneously put pressure on banks to restructure. Economists believe the bad debts will not be entirely settled until 2015 if the AMC is established now.

They also criticize a plan of the Ministry of Finance to establish a government-controlled corporation to take charge of settling private sector bad debts. Economists say that settling bad debts is not a job of government. They believe that commercial banks have to deal with their bad debts before asking for government intervention.

Other economists, however, believe that establishing an AMC is not a feasible idea at the moment considering Vietnam’s worsening economic downturn.