Dr Ngan, who is a member of the National Council for Finance-Monetary Policy Consultancy, said earlier this month that the government approved project no 254 to restructure credit institutions in the 20110-2015 period, with the first stage of the process focusing on increasing the commercial banks’ health.
To this end, Ngan said, bad debts should be handled, and the government should repurchase certain real estate projects to serve social security purposes.
“Once the unmarketable investments sunk in the properties are released, they will return to monetary circulation, and create a new source of capital for banks to offer as loans without the need to increase deposit interest rates to attract lenders,” he explained.
Ngan said the solution suits the current economic situation, when even high deposit interest rates have not kept mobilized capital from slumping.
“Deposit rates have remained high in the first two months of this year, but deposits have still dropped,” he said.
“We have kept on ensuring high interests for depositors, and have to pay a price for this: the exorbitant lending interest rates.”
Ngan said money circulation should be increased to create more capital.
“Businesses borrow bank loans for production, and deposit their profits, and borrow again for expanded production.
“That is how money creates money without a heavy reliance on deposits mobilized from the public,” he elaborated.
He said certain measures should be implemented to release the capital sunk in the frozen real estate market so that the money can return to normal circulation.
Where is the money?
Regarding which real estate projects are to be purchased, and where the government will source capital for buying bed debts, Ngan said this is an inter-ministerial task.
“The Ministry of Construction may be expected to develop the standards for the to-be-bought projects, which should be those whose functions can be amended to suit social welfare programs,” he said.
“For instance, the government can repurchase certain apartments suitable for functioning as dormitories, or accommodation for residents whose houses have been relocated.”
The process should be strictly implemented to ensure the targets of unfreezing the market and assisting businesses to overcome financial difficulties.
As for the capital sources, Ngan said government bonds or ODA (Official Development Assistance) funds can be taken into consideration.
For example, instead of using agovernment bond to build a new student dormitory, the money can be used to buy a real estate project with a similar function, he said.
“Similarly, ODA funds can also be used to buy housing projects to provide resettlement for residences, rather than setting up a new one.”