VAMC’s herculean debt task in review
VAMC’s herculean debt task in review
Nearly half a year since the Vietnam Asset Management Company (VAMC) was established to restructure the Vietnamese banking system’s bad debts, VAMC chairman Dang Thanh Binh spoke with VIR about the company’s achievements and its main task in improving the use of the country’s capital.
Could tell us about the first half year of VAMC’s operations?
VAMC is currently buying bad debts from credit institutions at their book value through the issuing of special VAMC bonds. But this will only temporarily help the banks resolve their bad debts; they have to undertake restructuring themselves to ensure long-term sustainable development.
The level of bad debts in the banking system is currently high. Without VAMC the banks would struggle due to the high risk provisions they would be forced to make and many banks would be incapable of making such provisions as they are too undercapitalised.
The truth is, if you were to ask me, what has VAMC really contributed to the restructuring of the banking system, I’d have answer “not a lot”. The reason is that VAMC only began operating recently and it hasn’t bought much in the way of bad debts and this process is just at the beginning, so it won’t have much initial impact. Therefore, it is fair to say, despite meeting initial expectations, VAMC still needs to strengthen its work.
In addition to banks being required to sell their bad debts to VAMC, more and more banks want to sell their debts to the company, even relatively healthy institutions. This shows that banks have begun to realise the benefits of the debt trading mechanism through VAMC. Specifically, they can quickly clear their balance sheets, reduce provisioning costs, increase liquidity, and better meet the needs of the market .
Will VAMC be forced to shoulder all types of debts?
The VAMC’s purchase of debts is based on the documentation of bad debts presented by the banks. The State Bank as well as VAMC has very specific instructions on procedures and documents relating to the purchase of bad debts.
VAMC also regulates that for debts worth over VND100 billion ($4.76 million), the board of management will discuss the proposal, while for debts worth less than VND100 billion, the general director will have the right to make a decision. Obviously, VAMC will not buy all the bad debts that the banks want to sell, but of course we will consider purchasing bad debts that are eligible under the regulations.
So far, we haven’t faced any complicated issues in relation to the purchase of bad debts yet, nor difficulties in considering and deciding which debts to buy.
If you had the opportunity to establish VAMC with the information you now have, would you change anything about how it is run?
To be honest, at this moment, we’re satisfied with VAMC’s operation. If we had the chance to start over, we’d probably not be able to do more, although some regulations on the operation of the VAMC could be better, especially some provisions on financial mechanisms.
However, in the coming period when VAMC expands operations into the field of debt settlement, there will certainly be much more complex problems to solve than in the initial phase.
In fact, there are many regulations which are not really suitable for VAMC’s specific characteristics as well as requirements on the handling of bad debt which we will certainly have to study more to adjust for VAMC to complete its task.
Many banks want to sell off their bad debts at market prices, can the VAMC accommodate this?
No bank has sold their bad debt to VAMC at market prices. Obviously, with chartered capital of VND500 billion ($23.8 million), VAMC can’t afford to buy every debt.
However, what is more important is the trading mechanism between VAMC and debt selling banks as well as between VAMC and new investors to buy these debts. How can we speed up the classification of asset debts to shorten procedures for all parties? Who are participant in the transaction? It’s not a simple story, and it requires greater capacity and understanding among VAMC’s staff, working in conjunction with various ministries and agencies.
How about selling these bad debts that VAMC has bought? When will VAMC begin this?
As I said, it’s what VAMC will have to do, but it’s not simple to carry out. After the initial priority to buy the bad loans to help banks reduce their financial burdens has been carried out, the handling of the bad debt will be the next priority.
However, in the context of an economy facing difficulties, I think the first thing is how to support enterprises to overcome their difficulties, instead of selling their debts and assets at a low price. This is a matter of principle. Therefore, we will do it only when other methods can’t be applied.
Vietnam’s economy is overcoming the most difficult time. It means that business conditions will be more favourable and assets will gradually regain their true value. That is also another reason why at this moment, selling bad debts at any price is not necessarily a good solution.
vir
