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VAMC special bonds may not decrease bad debt ratio in 2015

Update: March, 10/2015 - 09:20
A bank teller counts money. The VAMC plans to issue bonds worth up to $3.76 billion to acquire bad loans in 2015. — Photo dantri.com.vn
HA NOI  (VNS) — Industry insiders are doubtful whether the Viet Nam Asset Management Company (VAMC) issuing special bonds will help reduce the overall bad debt ratio to below 3 per cent in 2015.

VAMC plans to issue bonds worth up to VND80 trillion (US$3.76 billion) this year.

The State Bank of Viet Nam (SBV) had allowed the company to issue the bonds to acquire bad loans from credit institutions last week, in the context that the Government had set a 3 per cent target at the beginning of the year.

According to latest SBV data, the total non-performing loans officially reported by credit institutions had reached about VND167 trillion ($7.95 billion), or more than 3.8 per cent of all outstanding loans, at the end of last October.

Some other reports stated that the non-performing loans amounted to 5.3 per cent of the total outstanding loans, according to Dau tu Chung khoan (Securities Investment).

Industry insiders are worried that the value of bad debts might increase significantly after April 1, when the central bank's circular on debt classification and a risk provisional fund's establishment for lenders becomes invalid.

This circular has enabled credit institutions to extend debt payment deadlines and maintain existing debt records, helping curb bad loan growth against tough economic conditions, since last June.

This also means that bad debts are likely to rise when the document is no longer valid, especially when the number of businesses being dissolved or halting operations will still increase.

"Banks have had to speed up bad debt resolution since the beginning of this year," the general director of a joint stock commercial bank said, adding that credit institutions will have to assess debts more accurately when the circular expires.

The situation is very different from the last few years, when bad debts were often processed slowly during the initial months of the year. In 2014, the VAMC reported debt purchases of only VND14.86 trillion ($707.62 million) during the first half, while it had set an annual quota of VND70 trillion ($3.33 billion) to VND100 trillion ($4.76 billion).

The general director specified that banks usually care about boosting credit growth rather than selling bad debts early in a year, but with the bad loan ratio of 3 per cent allocated for 2015, "there will be no chance for tardiness."

SBV Governor Nguyen Van Binh had issued a directive urging credit institutions to step up the processing bad debts in January.

He also directed lenders to resolve at least 60 per cent of the total value of bad loans by June 30, which they were supposed to handle in 2015.

They also have to transfer at least three-fourth of their total debt that they registered for sale to VAMC this year, within that deadline.

With regards to the special bonds issued last week, SBV said the bonds will be valid for a maximum of five years, and it has asked VAMC to closely coordinate with credit institutions to restructure the debt after buying it.

VAMC chairman Nguyen Quoc Hung said the VND80 trillion issuance value is sizable and the combined purchasing price may amount to VND100 trillion, and the company will accelerate buying debts right now.

Credit institutions are reportedly handling bad debts actively and themselves with their provisional funds and finances being sourced from mortgage sales.

Given these joint efforts, this year's target for controlling non-performing loans can be achieved, Dau tu Chung khoan commented.

In 2014, VAMC had bought about VND95 trillion ($4.52 billion) of bad debts for a combined price of more than VND70 trillion ($3.33 billion). — VNS

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