Special regulations suggested to expedite sales of debts
Special regulations suggested to expedite sales of debts
The chairman of the Viet Nam Asset Management Company (VAMC) has recommended the National Assembly issue special legal regulations to expedite the current sluggish sales of non-performing loans (NPLs).
Chairman Nguyen Quoc Hung suggested last week that it was necessary to issue a resolution or law that takes effect in 3-5 years to handle bad debts.
Hung also recommended that the Government quickly ratify regulations on debt trading conditions in accordance with Viet Nam's reality to allow for the creation of a debt trading market.
As only the VAMC, the Finance Ministry-run debts and asset management companies (AMCs), and other AMCs under the umbrella of banks, were allowed to trade NPLs, the debt market needs further refining, more participants and a legal framework for settling bad debts, Hung said.
Experts also attributed the sluggish sales of distressed assets to a lack of regulations that permit private and foreign investors to purchase bad debt, and the out-of-date legal framework that hinders measures aimed to recoup mortgaged assets.
Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission (NFSC), said that the shortcomings in the legal framework has hindered foreign institutions from stepping in to purchase NPLs in Viet Nam at market prices.
According to Hung, VAMC has helped remove NPLs from banks' balance sheets, coupled with banks' provisions for credit risks. VAMC acquired VND90.23 trillion (US$4 billion) in bad loans at a book value of VND82.73 trillion ($3.69 billion) from credit institutions in 2015 through October 20, in exchange for special bonds. The accumulative amount of bad debt VAMC has purchased since its launch in 2013 totaled VND225.6 trillion ($10.07 billion).
In fact, however, VAMC didn't actually buy the NPLs, but only housed them as they helped banks restructure their debt or sell them off.
Statistics from the Government's financial watchdog NFSC also showed that as much as 45 per cent of total NPLs has been held by VAMC, 28 per cent has been handled with provisions and 27 per cent through debt recoveries.
According to experts, risks continue with banks, who must fully write off unrecovered debts over time by contributing revenues from their annual profits. How successful VAMC is in disposing of NPLs will determine banks' profit margins. The key to that is expediting sluggish sales of their distressed assets.
Le Xuan Nghia, director of the Business Development Institute, said that the profitability of the banking system was currently low, at half of earlier levels, as lenders were allocating sizable resources to resolve bad debt. Therefore, banking regulators should prioritise improving profit margins of local banks to help them consolidate.
Further, according to Nghia, if banks' financial capacities are weak, they will not be able to purchase needed technological applications and might risk lagging behind their competitors.
