Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development

Diversifying measures to handle bad debts in real estate lending .

In addition to overdue debt settlement measures applied at BIDV Quang Trung, there are still some measures that in some cases proved to be very effective in handling overdue debts.

+ Handling bad debts through direct recovery and sale of loan security assets.

Based on the results of periodic debt classification, the bank directs its branches to review and develop a plan to handle and recover bad debts according to each specific measure. Accordingly, the method of debt collection directly from customers, debt recovery through the sale of collateral assets are given top priority.

+ Handling bad debts by debt restructuring measures

Debt restructuring is a measure used when a debt is due for repayment but the bank considers that a customer is unlikely to be able to repay the loan to the Bank according to the previously signed repayment schedule due to the customer’s difficulties in payment. However, if the bank restructures the repayment term (debt extension, debt repayment term adjustment), the customer is fully capable of repaying the bank’s debt on time.

+ Handling bad debts with a risk reserve fund

Following Decision No. 493/2005/QD-NHNN and Decision No. 18/2007/QD-NHNN of the State Bank of Vietnam, BIDV Vietnam has issued Decision No. 636/QD- BOD-XLRR stipulating on debt classification, provisioning and risk handling. Quang Trung branch also bases on this regulation and the direction and guidance of the superior bank in the management of bad debt of the branch.

+ Handling bad debts by reducing and exempting interest This measure is applied to reduce financial difficulties for customers, create conditions for customers to restore production and business activities, stabilize their lives, encourage customers to pay part or all of the remaining bad debt at the bank.

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+ Dealing with bad debts by discounting debt collection

This is a form of reducing the value of the debt payable to the debtor, the discount value agreed upon by the bank and the debtor but in the favor of the debtor in order to promote the final payment of the debt. Although the bank will suffer a certain loss, it will soon recover the debt and eliminate the bad debt on the balance sheet.

+ Handling bad debts by legal measures

Legal measures are usually the last resort applied by the Bank, after other measures have been applied but the debt collection has not been effective. Therefore, it is necessary for the support of legal agencies such as the Court, Judgment Execution to assist banks in recovering loans.

+ Handling bad debts by other measures

In addition to dealing with bad debts by the above measures, in the past time, the Bank has also implemented measures to handle bad debts on the basis of the help, support and facilitation of many ministries and agencies such as the Ministry of Transport and Communications. Transport, Ministry of Construction, BTC, State Treasury, Provincial People’s Committee, …

+ Co-sponsor measure

In some cases, bad debts are beyond a bank’s capacity or are enough or not effective enough to deal with, and there needs to be coordination between banks in the form of co-financing or syndication to deal with overdue debts. strengths such as: Each bank has a familiar customer system with a thorough knowledge of the field or in other words has its own strengths. Therefore, the co-sponsorship will focus and complement each other’s strengths, limit weaknesses, create synchronous control of customers, supplement capital, operations and learn from each other.

+ Effectively apply measures to sell bad debts

By participating in the debt trading market, BIDV Quang Trung can consider selling overdue bad debts to debt trading companies, banks or other economic entities… This helps the Bank. focus on new business, implement effective measures to prevent overdue debts without being affected by the settlement of outstanding debts with customers. Moreover, the subjects who conduct debt trading in the market operate professionally and take advantage of information, scale and authority, etc., especially without the pressure of relationships with customers like banks, so the debt settlement will be more effective.

For debt security assets in cases that have been decided by the Court but have not yet been handed over to the Bank, the Bank actively cooperates with the judgment enforcement agency to quickly recover and receive the assets for handling. After that, these debts are sold to companies that buy and sell debts and outstanding assets of the business. For unsecured debts but still have enough legal documents, no disputes, existing and operating debtors: BIDV Quang Trung determines the ability to self-collect and sell designated debts… 3.3 View Recommendations for state management agencies

3.3.1 Recommendations to the State

The gloomy picture of the real estate market in 2012 has exposed many shortcomings whose consequences will have a lasting effect on 2013, 2014. The real estate market is quiet, prices drop and supply imbalances. commodity demand. The current loan balance is quite high.

The frozen real estate market not only causes difficulties for real estate businesses but also affects the liquidity of credit institutions.

By the time of the SBV’s statistics until the end of October 2012, this figure has reached 207,595 billion VND. Meanwhile, foreign direct investment capital in 2012 flowed into the real estate market trickling. According to data from the Ministry of Planning and Investment, in the first 11 months of 2012, additional and new FDI capital into real estate reached 1.84 billion USD of the total registered FDI capital of 7.25 billion USD.

According to economic experts, segments in the real estate market still face many difficulties, at least from now until the end of 2013 due to the influence of macroeconomic factors in a vicious circle such as: Slow growth leads to As a result, income declines, thereby reducing housing demand and construction-related industries, resulting in slow economic growth… Besides, real estate bad debts from the banking system cannot be resolved in this period. It will affect the liquidity of the real estate market because it is difficult for banks to lend to businesses or project owners until the old debt has been resolved. This has a direct impact on domestic capital. It is also unlikely that FDI or remittances will increase dramatically because the profitability of Vietnam’s real estate market is in a declining stage, which will reduce the attraction of foreign investors.

How to create a “push” for the real estate market in 2013. That is a question that not only bothers investors but also policy makers, in order to stimulate market demand and economic growth. Right from the end of 2012, the Ministry of Finance proposed to the Government a package of 21 solutions to support the market in general, including many solutions to remove difficulties for the real estate and capital markets.

– In order to gradually remove difficulties for the real estate market, in the coming time, it is necessary to continue to study and perfect the legal framework on the real estate market, including the revised Land Law, guiding the implementation of the Housing Strategy. … In particular, it is necessary to develop an accurate, public and transparent data source on the real estate market in order to well manage the real estate market and create transparency for the market.

In addition, businesses and investors must also actively restructure the source of goods and actively seek financial sources to complete the project, and at the same time have many promotional and cost-lowering solutions to raise the demand. Because the liquidity of the market is in poor condition because it is difficult for domestic and foreign capital to increase suddenly, it is necessary to deploy the model of other financial institutions to support capital for the market such as real estate savings funds. , real estate trust fund … to provide medium and long term capital for the market.

– In addition, it is necessary to continue to orient for investors to focus on deploying affordable commercial apartments, social houses, tax houses on the basis of the State increasing incentives for project implementation if found. necessary to ensure social security. Create a favorable environment for outside investors to participate in the construction of social housing.

Currently, Vietnam only has a price index for housing and construction materials, so other segments or segments of the real estate market do not yet have a corresponding price index. Supply and demand, market prices of the remaining goods are very difficult, affecting the management of the real estate market. Therefore, it is necessary to urgently build a market price index for the remaining goods of the real estate market to serve as a basis for the calculation and collection of real estate-related items into the state budget to ensure close to market prices. avoid loss of revenue for the state budget. The Government must have a decisive attitude to rearrange State-owned enterprises, only to survive effective businesses, which are necessary for the people’s livelihood, and equitize State-owned enterprises.

– The State needs to strictly control and strengthen the responsibility in granting licenses for real estate investment projects to suit the actual capacity of that enterprise. In recent years, the major obstacles hindering the Bank’s lending activities is the mismatch between the capacity and actual level of enterprises and the business scope permitted by the State. Many enterprises, both state-owned and non-state-owned, have been granted establishment licenses and business registration by the State with functions and tasks beyond their financial capacity and technical qualifications…

– The State needs to continue to improve and amending and promulgating laws and documents in the form of laws related to the operation of the economy in general and to banking and real estate activities in particular, creating a legal corridor for business activities and banks are on the right track.

– The State needs to take measures to ensure a stable economic environment, contributing to ensuring the effective use of bank capital for the economy. The state should take steps or implement solutions to remove difficulties caused when there is a transformation and adjustment of mechanisms and policies related to the entire economy.

– The government should have regulations to encourage foreign investors to invest in the commercial banking system. If banks sell debt to foreign financial companies, they will not only have more operating capital but also have the opportunity to access modern banking management methods and new banking technologies.

– Resolutely put commercial banks in the right position and function, banks must maintain their autonomy in operations, actively improve the quality of credits, and each credit must be appraised and self-assessed by the Bank. lending decisions and take responsibility for their decisions without being subjected to any non-economic pressure.

3.3.2 Recommendations to the SBV and other authorities

– The State Bank should have a mechanism for commercial banks to have the initiative in handling the sale of assets to recover debts. In many cases, customers get mortgage loans with real estate projects under construction, when the customer is unable to repay the loan, the bank proceeds to handle the collateral, encountering difficulties. One of those difficulties is under the Civil Law.

– The SBV needs to strengthen the inspection and supervision of credit activities of commercial banks. This activity plays an important role in detecting signs of overdue debt and bad debt to prevent and handle credit risks in real estate lending of the banking system. Because the unstable operation of one bank will also affect the whole banking system. The SBV needs to closely follow the actual operation of each commercial bank to early detect and prevent violations.

– The State Bank allows commercial banks to fully invest in debt-redeemed assets that are still under construction or damaged or degraded; implement compulsory insurance costs to contribute to preserving the property well, limiting damage and being able to handle it. Capital is taken from business capital for investment, then an increase in the value of assets received and assigned debts is recorded. The State Bank should guide the accounting of assets that have been attached to debt in accordance with the principle of debt repayment by assets.

– The SBV needs to continue to study practical experience, monitor and evaluate the effectiveness of specific solutions in countries in the region and the world to learn from experience and proactively issue or propose to the Government mechanisms. , regulations to improve the legal basis for transparency and safety in the release and sale of mortgaged assets.

– The Government and the State Bank need to create a legal corridor for commercial banks to have the autonomy to organize the sale of pledged and mortgaged assets to recover capital for overdue debts, especially there may be policies Priority shall be given to difficult-to-collect debts arising such as tax exemption, turnover, land use right transfer tax, one-time auction service fee collection when the pledged or mortgaged property is sold in the case of development. Trade properties through auction centers.

– The authorities need to detect and promptly handle the birth of a non-state enterprise with “virtual capital”. Boldly for dissolution, bankruptcy of a loss-making enterprise that is unable to repay the bank’s debt for too long. The most relevant agencies are the legal agencies that need to help the bank in managing overdue debts to recover capital for the State, handle the bank officers strictly, and the right people when there are related violations. .

– For law enforcement agencies such as Courts, Procuracy, Public Security, and local authorities at all levels, it is necessary to coordinate with banks in handling and settling unrecoverable bad debts. .

– Governments at all levels together with subjective agencies of businesses need to improve their responsibilities in urging debtors to fulfill their payment obligations to the bank. CONCLUSION CHAPTER 3

Chapter 3 presented the trend of Vietnam’s real estate market in the future and orientation on limiting bad debt in real estate lending of BIDV Quang Trung Branch. In addition, this chapter has also proposed and analyzed a number of solutions to limit and manage bad debts in real estate lending at joint stock commercial banks. BIDV Vietnam – branch Quang Trung related to construction Develop effective risk prevention measures and strengthen bad debt management at BIDV Quang Trung. Thereby, the author has some general assessments on the work of limiting bad debt in real estate lending at BIDV Quang Trung branch and some recommendations to the State Bank and authorities.

CONCLUDE

Vietnam’s economy has had many positive changes since joining the WTO. This change has created many opportunities for our country in expanding the market, promoting scientific and technical progress… but also causing many challenges such as the level of competition in the market is getting more and more fierce, the binding of international law… for Vietnamese enterprises and commercial banks is no exception. Besides, when the world economy has many fluctuations, it will greatly affect all aspects of the Vietnamese economy, including the real estate sector. Although this is not a new field for Vietnamese investors, the lack of professionalism in the management and administration of the real estate market, or the “real estate bubbles” always pushes the young market of our country into the market. crisis.That not only affects investors and customers in the market but also directly affects the “creditors” who are commercial banks in Vietnam.

In recent years, Vietnam’s commercial banking system has made significant changes. However, bad debt in general and bad debt in real estate lending is currently a worrying problem, causing many difficulties for commercial banks and causing instability in the national financial system. Although, bad debts in real estate business loans arise mostly due to objective reasons such as economic and political instability… but undeniably a large part comes from the subjectivity of commercial banks. When bad debt in the field of real estate lending occurs, it will cause heavy damage to the economy. Because real estate is a very special commodity, playing an extremely important role in the economy, when these goods are circulated well, the economy will grow well and vice versa.When this market is stagnant, it will affect many other factors of the economy such as production of building materials, construction workers, revenue of construction investors, real estate loans of commercial banks… Therefore, currently, limiting bad debt in real estate lending is a difficult problem that has not been answered.

After researching at the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) – Quang Trung Branch, going through the analysis of the current situation of bad debts, the causes and solutions for bad debt management in the banking sector. loans for real estate business at the branch. I realize that this is a big topic, researched and developed by many banks and experts to meet the requirements of the current economy. Within the framework of the thesis, it is inevitable that there will be shortcomings, I would like to receive the contributions of teachers to make my thesis more complete.

Thank you sincerely.

REFERENCES

1. The system of legal documents, decrees and circulars related to commercial bank credit and bad debt of commercial banks such as Civil Law 2005, Law on real estate business 2006, Decree 153/2007/ND-CP, Decision 493/2005/QD-NHNN… 2. Bank for Investment and Development of Vietnam, Annual Report 2011, 2012 3. Assoc. Financial edition, 2011.

4. Assoc. Prof. Dr. Phan Thi Thu Ha, Commercial Banking Administration, Transport Publishing House, 2009.

5. Some websites:

http://dantri.com.vn

http://bidv.com.vn

http://luanvan.com.vn

http://tailieu.vn

http://thoibaonganhang.vn

http://vneconomy.vn

http://vnexpress.net

http://www.tapchitaichinh.vn

Date published: 01/11/2021