Many credit institutions have registered to sell their bad debts to the VAMC especially after it revealed its plans to spend VNĐ35-40 trillion (US$1.51-1.76 billion) on buying bad debts in the last few months of the year. — Photo cafef.vn

Compiled by Thiên Lý

Recently Sài Gòn Thương Tín Joint Stock Commercial Bank (Sacombank) sold VNĐ2.58 trillion worth of non-performing loans to the Việt Nam Asset Management Company.

Most of the debts have collaterals, including many high-value properties and equipment in Đà Nẵng and HCM City.  

As of June 30 the bank had sold bad debts to the VAMC worth VNĐ38,758 billion.

Many credit institutions have registered to sell their bad debts to the VAMC especially after it revealed its plans to spend VNĐ35-40 trillion (US$1.51-1.76 billion) on buying bad debts in the last few months of the year.

The VAMC’s use of market norms to buy and sell debts has also encouraged the credit institutions to sell their debts to it.

Its buying and selling of debts have been improved significantly since the issue of Resolution 42/2017/QH14 on bad debt recovery by credit institutions, which took effect on August 15 this year.

The resolution provides comprehensive guidance for the seizure of collateral.

It allows credit institutions, foreign banks and the VAMC to directly seize collaterals against bad debts held by a borrower or third party, and enjoins the police and other local authorities to assist them in this.

Bad debts can now be sold to any legal entity, including foreign investors, without them needing a licence for debt trading.

It also sets forth a framework for a secondary debt trading market, which was high on the wish list of foreign and domestic investors alike.

The VAMC has bought bad debts worth over VNĐ260 trillion (over $11.45 billion) so far.

It plans to hike its chartered capital from the current VNĐ2 trillion to VNĐ5 trillion next year and to VNĐ10 trillion by 2020 to facilitate its debt buying.

But one problem is that while it actively buys bad debts from credit institutions it is not able to sell the debts or realize them at any speed.

It has in fact only realised around VNĐ10 trillion worth of bad debts.

While Resolution 42 facilitates VAMC’s confiscation of collaterals, it is not easy for the company to sell properties and recover money because most of the mortgages are of high value.

Recently VAMC put Sài Gòn One Tower up for auction after seizing it from the Sài Gòn One Tower Joint Stock Company, which had failed to repay its debt (principle and interest) of VNĐ7 trillion ($308 million).

But so far no one has registered to participate in this auction.

In mid-September Vietcombank’s Thủ Đức branch in Hồ Chi Minh City met with the same fate after announcing an auction of a property in Vũng Tàu city’s Ward 5 with a starting price of VNĐ48.6 billion ($2.14 million). 

Agribank AMC, an asset management company belonging to State giant Agribank, announced on September 19 that V-Ikon would go under the hammer at a starting price of VNĐ319.5 billion. It was forced to do so after an earlier auction planned in May had no takers.

But once again potential buyers voted with their feet.

In HCM City, there are hundreds of property projects, estimated at a whopping 500, that have remained stalled for several years but with no resolution in sight.

Analysts said collateral for 70 per cent of bank loans in the city is in the form of property, many of them without a certificate of land use rights. Because of this, the sale of these assets is very difficult.

To speed up the bad-debt recovery process, VAMC chairman Nguyễn Tiến Đông said the company has made a draft plan to issue special bonds but this bond will be rediscounted at the SBV.

The money expected to be raised from issuing bonds would facilitate the company’s bad debt settlement, he said.

VAMC experts said it was necessary to set up a trading floor where bad debts could be securitised and listed, they said.

Others stressed the need to have a level playing field for foreigners since both foreign individual and institutional investors have been keen on the Vietnamese debt market, particularly bad debts secured by properties.

But for this it is also necessary to resolve the obstacles to foreigners’ home ownership.    

The Asian Development Bank’s 2017 Outlook Update says the Vietnamese Government needs to determine at what levels VAMC’s should stop buying bad debts and switch to their recovery.

Otherwise, banks would continue to churn out new bad debts, it warns.

Banks resort to bonds for liquidity

In September Vietinbank revealed plans to issue bonds this year managed by Vietinbank Securities Company.   

LienVietPost Bank also announced plans to issue bonds totally worth VNĐ2 trillion (US$88.1 million) to existing shareholders.

Last year too many banks, including Vietcombank, Vietinbank, ACB, and NCB, issued bonds to raise funds. 

Analysts said many banks want to mobilise particularly long- and medium-term funds.

The lenders are under pressure ever since Circular 06 mandated a cut in the use of short-term deposits for medium- and long-term loans from 60 per cent to 50 per cent since early this year.

Besides, State-owned banks are also raising funds to pay dividends.

VietinBank announced in September that it would pay a dividend of 7 per cent for 2016. At this rate, the payout will be VNĐ2.6 trillion.

Earlier Vietcombank’s board had approved an 8 per cent dividend payout involving a payout of nearly VNĐ2.9 trillion.

To raise funding, a majority of banks have opted for issuing corporate bonds, which have long tenors and steady coupon rates, enabling them to make clear lending plans amid all the uncertainty brought about by mounting bad debts and changes by the central bank.

Mobilising long-term deposits is not easy in Việt Nam because most people prefer shorter terms.

But analysts pointed out this would extract a certain price in the form of lower profits since interest rates on long-term bonds are usually higher than on deposits.

They also stress the need for the banks to have concrete plans in place to ensure that the money they raise is used efficiently. — VNS