The banking industry is expected to meet target to reduce non-performing loans to 3 per cent or lest by the end of this month. — Photo laisuat.vn

HA NOI (Biz Hub) — The banking industry will meet the State Bank of Viet Nam's target to reduce non-performing loans (NPLs) to 3 per cent or less by the end of this month.

This was confirmed by chairman of the Vietnam Asset Management Company (VAMC) Nguyen Quoc Hung.

In June this year, the central bank's Governor, Nguyen Van Binh, required credit institutions to reduce the NPL ratio from 3.72 per cent of total outstanding loans reported by the end of June to 3 per cent by September 30 this year.

Hung estimated that the NPL rate of the entire banking system was currently slightly more than 3 per cent, adding that VAMC purchased VND77.273 trillion (US$3.43 billion) in NPLs from credit institutions in the first eight months of this year.

Leaders of credit institutions said they were also hurrying to meet the deadline.

Besides selling NPLs to VAMC, credit institutions had actively handled NPLs by funding risk provisions, Hung added, using Agribank as an example.

"Being a bank with a high number of NPLs, sometimes reaching more than 6 per cent, Agribank has made great efforts to bring the rate down to 2.8 per cent, " Hung said.

Further, according to Hung, this year was also considered a better year for VAMC in collecting NPLs. The company's NPL collection ratio this year is roughly 7-8 per cent compared with 4 per cent in 2013 and 2014.

He said VAMC had collected nearly VND8 trillion ($355.5 million) of NPLs as of August 31 this year, nearly doubling the amount from last year.

However, Hung admitted that there was no ultimate resolution for the handling of bad debt, as it had been difficult to find investors to purchase the debt.

According to Thoi bao ngan hang (Banking Times), VAMC has so far bought VND182 trillion ($8.08 billion) worth of NPLs, but sold only VND9 trillion ($400 million).

Besides the needs of the debt trading market, Hung said, a streamlined legal framework for bad debt trading procedures and the settlement of secured assets should also be necessary to help VAMC retrieve and handle bad debts.

Currently, VAMC purchases bad debts using its own funds or issues special bonds to credit institutions. The bonds can be used to obtain refinancing from the central bank. The company will, in theory, sell the debts to investors, both foreign and local. If the debts are not sold by the time the bonds mature, the banks would have to swap them with the bad debts.

Besides, according to economist Nguyen Tri Hieu, another barrier to investors taking part in the debt trading market is that Vietnam does not have independent assessment agencies.

Investors will not participate in a market unless they know the assets' true value, the potential to resell such assets, and can clearly understand bad debt trading procedures in Viet Nam, according to Hieu. — VNS