Banks must sell bad debts to VAMC if NPL ratio reaches 3 per cent

Banks must sell bad debts to VAMC if NPL ratio reaches 3 per cent

Under the draft, banks exceeding the threshold must transfer bad debts to VAMC based on inspection and valuation results to maintain a safe NPL ratio.

VAMC headquarters in Hà Nội. — Photo vneconomy.vn

The State Bank of Vietnam (SBV) has proposed a draft decree and circular requiring credit institutions with non-performing loans (NPLs) at 3 per cent or higher to sell those debts to the Vietnam Asset Management Company (VAMC).

Under the draft, banks exceeding the threshold must transfer bad debts to VAMC based on inspection and valuation results to maintain a safe NPL ratio. They must also set aside risk provisions under Decree 86/2024/NĐ-CP, meet capital safety requirements and follow restructuring plans approved by the SBV.

VAMC will purchase the bad debts using special bonds. Loans eligible for market-value purchases must have valid collateral, complete documentation and active borrowers and must not be used as collateral for other obligations. Collateral cannot be under dispute, enforcement or bankruptcy. Purchase prices will be based on independent valuation and market conditions.

Each bond or special bond will correspond to a specific bad debt. Banks holding these instruments can use them to repurchase sold assets, refinance at the SBV or join open-market operations. The risk weight is set at 0 per cent for bonds and 20 per cent for special bonds when calculating capital adequacy ratios.

The SBV may inspect or require independent audits or valuations of banks’ asset quality and capital, with all costs borne by the banks.

The draft decree is part of the SBV’s push to tighten bad debt control and strengthen financial discipline. By requiring banks to sell NPLs once they reach a set level, the rule aims to prevent risks from building up and ensure early intervention.

It also follows recent updates to the Law on Credit Institutions and Circular 03/2024/TT-NHNN, reflecting the Government’s stronger stance on cleaning up bad debts and keeping the banking system stable.

The decree and guiding circular are expected to take effect in October. 

Bizhub