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VAMC to buy $4.67b in bad debt

Update: January, 15/2015 - 09:43

A new circular that takes effect in April this year will force credit institutions to apply international standards in classifying and assessing bad debts, but the problem still requires a different approach and understanding, Nguyen Quoc Hung. Chairman of the Viet Nam Asset Management Company (VAMC), tells local media.

What is the Viet Nam Asset Management Company's (VAMC) target this year?

Nguyen Quoc Hung, Chairman of the Viet Nam Asset Management Company.

This is the year that credit institutions will have to follow Circular 02 on bad-debt classification and risk provision. When it takes effect in April, the institutions will have to classify debts and assess customers following international norms. I believe that several lenders will take the initiative in selling their debts to VAMC this year.

We have targeted buying bad debts worth between VND70 trillion (US$3.33 billion) and VND100 trillion ($4.76 billion) this year. We hope to sell/resolve about VND8 trillion to VND10 trillion ($380.95 million to $476.19 million) of these. We have proposed to the State Bank of Viet Nam that the debts are purchased at market price (instead of prices fixed by lenders based on inflated collateral evaluation, as has been done thus far).

However, with a working capital of just VND500 billion ($23.8 million), it is very difficult to buy debts even at prevailing market prices. So, we will buy smaller bad debts first and use the experience when we have bigger funds to buy more. This will help avoid embarrassing situations.

And besides being allowed to buy bad debts at market prices, we need more funds. This means that our working capital should be raised to at least VND2 trillion ($95.23 million, through the issue of special bonds). This will help us have a foundation to issue corporate bonds that will, in turn, enable purchases of bad debts at market prices.

At the same time, we will continue to restructure debts, including adjusting debt terms and interest rates, and co-ordinating with credit institutions and customers in trying to resolve outstanding loans.

So the VAMC, rather than being a "tool" that merely buys and sells bad debts, will work together with credit institutions and customers to resolve the issues in the best way possible.

Is the VAMC facing difficulties after buying the bad debts?

Yes, the company has met many difficulties in resolving bad debts. The first is in dealing with the collateral. Sometimes, we work at length with customers and reach an agreement, but when the time nears to hand over the assets, they baulk.

There was one case where both VAMC and credit institutions agreed to allow some customers have three additional months more for restructuring and finding funds to repay their loan, but when that date was reached, they continued to put up hurdles to resolving the issue, disagreeing (with terms previously agreed on).

It is my opinion, therefore, that serious sanctions are needed to deal with a situation when debtors are unable or brazenly refuse to service their debt.

Auction is another area where we have run into problems. Agribank is an example. The bank has held 5-7 auctions, which took nearly one year, to get rid of a bad loan in accordance with the regulations. The VAMC itself recently spent four months to successfully auction a debt.

Even in cases where there is a high degree of consensus (between borrowers and lenders), the resolution of bad debts is difficult. In case there is a dispute or disagreement between the stakeholders, it gets extremely difficult and complicated.

What are the measures that VAMC can or will deploy to speed up the resolution of bad debts?

The first thing to do is to get all the stakeholders on the same page.

Then it is necessary to clearly show businesses that their projects are no longer feasible, no matter how much they delay a resolution.

To have businesses agree to liquidate their assets (used as collateral for loans), their (unrealistic) hope that a future surge in real estate market can clear the bad debt has to be deal with. If we can persuade them, they can sell their property projects and repay their debts.

One more trouble that the VAMC faces is the liquidation of assets at below the original price. For example, let's assume that an asset used as collateral was previously assessed at VND150 billion ($7.14 million) and the business's debt was worth VND100 billion ($4.76 million). If the asset is liquidated at VND70 billion ($3.33 million), a shortfall of VND30 billion ($1.43 million) is created.

The VAMC wants to speed up the sale of bad debts that it purchases, but we should not rush it, either. We should still find the most reasonable way to resolve the issue. — VNS

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