VAMC to Purchase Sour Loans with Cash for 1st Time to Quicken Bad Debt Cleanup

Tuan Minh

20:32 08/06/2016

BizLIVE - VAMC will acquire toxic loans with cash for the first time this year in a bid to speed up the cleanup of bad debt in the banking system.

VAMC to Purchase Sour Loans with Cash for 1st Time to Quicken Bad Debt Cleanup

A street vendor walks past branches of Vietbank and VietinBank in Hanoi. (Photo: Reuters)

The Vietnam Asset Management Company (VAMC), run by the State Bank of Vietnam (SBV), will make its first cash purchase of non-performing loans (NPLs) this year, VAMC Chairman Nguyen Quoc Hung told Bloomberg.
VAMC currently issues special bonds in return for NPLs, which banks may use as collateral to ask for loans from the central bank. Paying cash to clear the debt will give banks funds to speed up lending.
“This is a major step,” said Alan Pham, chief economist at Ho Chi Minh City-based VinaCapital Group, the largest asset manager in the country.
“The net effect is to resolve the bad debt instead of moving it around. Once you pay the market price and you pay in cash, the debt is extinguished,” he commented.
“This is going to help banks that need liquidity and to offload their bad debt,” said Trinh Nguyen, a senior economist at Natixis Asia Ltd. in Hong Kong.
VAMC, which was established in July 2013 to help clear soured loans, also plans to recoup some 30 trillion dong ($1.4 billion) of toxic assets this year through sales of debt and collateral, Hung tipped, adding that the firm has recovered about eight trillion dong ($356 million) so far this year.
Some 10 banks have offered to sell 17 trillion dong ($757 million) to VAMC this year, he added.  
In April 2015, the government leveled up VAMC’s registered capital by four-fold to two trillion dong in a move to give the firm more financial support to resolve bad debts. However, many analysts reckoned that such a move is not sufficient to deal with huge NPLs in the system.
It has been also allowed to purchase bad debt at market prices.
NPLs accounted for 2.55% of total credit at the end of 2015, down from 3.25% a year earlier. The bad debt ratio, however, increased to 2.62% in March this year, according to SBV data.