Banks hesitant over bad-debt settlement plans
Banks hesitant over bad-debt settlement plans
A regulation requiring banks to make provisions after selling non-performing loans (NPLs) to the planned Viet Nam Asset Management Company (VAMC) has caused banks to show little interest in the company.
After getting approval from the Prime Minister last month, the VAMC announced it would purchase bad debts at their book value by issuing special bonds, or at market value by using other sources.
The bonds will have a maturity of five years and banks can use them as collateral to obtain refinancing funds from the central bank. However, banks must set aside 20 per cent of the bonds' value as provisions every year until the bonds mature.
If bad debts have not been successfully resolved after the five-year limit, banks would be required to use the bonds to re-assume the debts.
Many banks said that this made them reluctant to take part in the VAMC project.
Tay Han Chong, CEO of MeKongBank, told Dau Tu (Vietnam Investment Review) newspaper that the measures would only delay dealing with the issue of bad debt.
The director of another bank, who declined to be named, said that VAMC would be a powerful tool for banks in need of a last resort, but that the mandatory spending on provisions made banks wary of accepting it.
Banks would have to spend their profits on provisions, so there would not be many perks for those that opted to sell, he said.
Vice chairman of Sacombank Nguyen Gia Dinh said that banks must work harder to deal with NPLs. As many businesses were also experiencing financial troubles, banks must be patient and keep rates low, he said.
"Our only option is to nurse these bad debts for a while and extend payment deadlines if necessary. Once the business environment recovers, we will be able to recoup the capital," Dinh told Dau Tu.
Cao Sy Kiem, member of the Monetary Policy Consultant Committee, said that while it was true that spending on provisions would affect the banks' profits, banks were not earning much anyway.
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