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Circular 9 opens NPL activity to foreign, local investors

Update: August, 01/2015 - 08:34
HSC said that this could be a breakthrough for local organisations since an open market would help the Vietnam Asset Management Company (VAMC) and banks reduce NPLs in the economy. — VNA/VNS Photo Tran Viet
HA NOI (VNS) — State Bank of Viet Nam's (SBV) Circular 09 is expected to encourage foreign investors to buy non-performing loans (NPLs) from local financial institutions, the HCM City Securities Corporation (HSC) said on Thursday.

HSC said that this could be a breakthrough for local organisations since an open market would help the Vietnam Asset Management Company (VAMC) and banks reduce NPLs in the economy.

HSC said that the circular, which takes effect in September, would control the purchase of NPLs between institutions in the finance-banking sector by defining the responsibilities of seller, buyer and other stakeholders.

The VAMC is a leading local entity founded by SBV in 2013 to buy NPLs from local financial institutions and sell them to investors.

In total, VAMC has purchased VND158 trillion (US$7.26 billion) of NPLs but sold only five per cent, VND7.8 trillion ($358.8 million), to investors.

In order to sell more NPLs, and reduce the rate of NPLs-to-total capital to three per cent by the end of this year, VAMC needs to find investors that are able to buy NPLs in large volumes, according to HSC.

However, local organisations will continue to be the main buyers of NPLs because overseas investors are not likely to do so in the near future. Sales will remain low until the value of NPLs are equal to their market price.

The circular will also prevent financial institutions from buying and selling NPLs to each other as a way to temporarily reduce their bad debt ratios.

Circular 09 states that a company must provide all required legal documents and financial records before it can sell any of its non-performing loans or bad debts.

Financial organisations must register, get SBV's approval and have a ratio of NPLs-to-capital under three per cent.

Asset management companies that belong to a financial institution are able to buy NPLs from another financial institution only if its parent has a bad-debt ratio below three per cent.

A financial institution cannot sell its NPLs to its subsidiaries, except ones whose restructuring plans are approved by the Government and the SBV.

A financial institution cannot buy back their NPLs and must issue an internal regulation on buying and selling NPLs that differentiate NPL auditing from NPL buying-selling.

NPL sellers are able to negotiate with buyers about contract details if the seller wants to sell a part or the whole NPL to several buyers.

NPLs must be recorded, reported to and tracked by the SBV in accordance with regulations. — VNS


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