Updated  
July, 28 2014 08:23:00

VAMC looks to find foreign buyers for bad debts

The central bank wants the company to sell the bad debts to foreign investors, but its hands are somewhat tied.— Photo cafef

Compiled by Thien Ly

Thanks to concerted efforts by the Viet Nam Asset Management Company (VAMC) and commercial banks, the former has so far bought around VND50 trillion (US$2.4 billion) worth of bad debts and plans to increase that to VND70-100 trillion by year-end.

It is only one part of the VAMC's bad debt mitigation process. It next has to think of how to deal with the bad debts it buys.

The central bank wants the company to sell the bad debts to foreign investors, but its hands are somewhat tied.

Analysts explain this is not possible because of the country's laws that prohibit foreigners from owning property in Viet Nam while most of the bad debts are related to property projects. How will foreigners buy the debts if they cannot get the title to the collateral?

The company has consulted international institutions and foreign debt-buying companies in the hope that they would buy the debts.

To help foreign investors appraise the debts the company has drawn up a list of 10 mortgaged properties together worth VND7.8 trillion (US$367.8 million). They include apartments, office buildings, hospitals, factories, and industrial parks in HCM City, Da Nang, Hai Phong, and Hai Duong.

Two foreign consulting companies have made preparatory studies to buy some of the debts.

For banks themselves mortgages properties are not easy to sell to recover debts because legal procedures are complicated and the property market remains sluggish.

A senior economist, who asked not to be named, said it would be very difficult to sell bad debts since the country lacks a real debt buying and selling market.

Nevertheless, the debts can be easily sold if their prices are attractive to investors. But not for the VAMC since the rates it pays to buy from the banks are often equivalent to 80 and 90 per cent of the value of the debt, which is considered too high.

Dr Cao Si Kiem, former governor of the State Bank of Viet Nam, told Investment and Securities newspaper that the banks recovered their bad debts by selling them to the VMAC. The aim of this model is to gather banks' bad debts in one place while helping the lenders clean up their balance sheets.

But the bad debts cannot be settled if there is no debt selling and buying market, he said.

He also reiterated the importance of foreign buyers, saying domestic resources that can be used for settling bad debts are limited.

So foreign investors should be provided with favourable conditions to buy if the bad debt settlement process is to be sped up, he said.

The foreign buyers' professional skills would also help set up a domestic debt buying and selling market, he added.

Local goods lacks policy support

At a recent conference to review five years of the "Vietnamese use Vietnamese goods" campaign, participants said since its launch by the Party Political Bureau in 2009 the campaign has received strong backing from ministries, agencies, companies, and the public, and achieved great success.

According to the Ministry of Industry and Trade's Domestic Market Department, 80 per cent of consumers are keen on Vietnamese-made garments, textiles, and shoes and 59 per cent are keen on local food items and fruits.

At supermarkets, local products account for 80 to 90 per cent of the goods sold.

But there is also some scepticism about the campaign.

One question that comes up often is about what can be called a Vietnamese product since that many that are labelled so are produced using imported equipment and machinery and raw materials and feedstock.

According to figures from the General Statistics Department, in 2000-12 consumer goods accounted for only 10 per cent of the country's total imports but imported raw materials and equipment represented a far higher figure.

Products made using imported feedstock and machinery account for much of the country's output. Statistics reveal that the rate of local content in goods is a mere 20-25 per cent on average.

Another problem is that products made for the domestic market are not given the same incentives as those produced for exports. Consequently, the production cost of the former are usually higher than that of the latter.

This means that Vietnamese have to pay higher prices for locally made goods than at foreign outlets.

In 2012 the country's consumer price index rose 9 per cent, while the export price index, or EPI, actually decreased by 1 per cent.

In 2013 these figures were 6.6 per cent and 2.4 per cent.

Analysts say that in addition to encouraging people to use Vietnamese products, policy makers should also create a level field for companies involved in production for the domestic market.

Inter-bank market busy

In the first seven months of the year the inter-bank market was very busy, with the total value of transactions estimated to have doubled from the same period last year.

Thanks to their strong brands and large networks, many major banks found it easy to mobilise funds from the public and ensure liquidity. But small banks found it difficult to attract people's savings especially with deposit interest rates becoming less attractive.

No surprise then that many have resorted to the inter-bank market in recent months.

The major banks, awash in funds, were major lenders on the inter-bank market and big buyers of government bonds. The smaller banks were ready to borrow even at high interests to shore up liquidity.

The inter-bank market was particularly busy in late January just before Tet and in early May when the central bank devalued the dong by 1 per cent.

In the period the value of transactions saw a year-on-year increase of 114 per cent.

In just the period from July 7 to 17 the total value of dong transactions on the inter-bank market topped VND106.8 trillion ($5 billion), or VND21.36 trillion ($1 billion) per day, while US dollar transactions were equivalent to VND58.59 billion ($2.8 million), or VND11.72 trillion ($552.6 million) per day.

With demand booming interest rates increased by 0.17 percentage points to 2.29 per cent in mid-July for overnight and one-week loans. — VNS

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