Money transaction is carried out at a bank. VAMC's $4.89 billion bond issuances last year helped reduce the bad debt ratio in the domestic banking system to around 2.7 per cent. — Photo thoibaotaichinhvietnam.vn

HA NOI (Biz Hub) — Terms for bonds issued by the Viet Nam Asset Management Company to buy bad debts from credit institutions, will be extended from five years to 10 years in some cases.

The State Bank of Viet Nam (SBV) mentioned the extension in a modified version of Circular No 19/2013/TT-NHNN, which took effect on September 15, 2013 regulating bad loan settlement between the company and domestic lenders.

The supplementary document is prepared for issuance, according to VnEconomy online.

The central bank expected the change to ease financial pressure and assure operational security for credit institutions, which still faced difficulties even after they had sold non-performing loans to the debt trading firm.

It said that the extension would be applied for institutions which were undergoing reorganisation or financial struggles, especially those suffering business losses. It would select the specific lenders.

Current regulations enable Viet Nam Asset Management Company (VAMC) bond holders to borrow refinancing loans from the central bank, with a value not exceeding 70 per cent of the price of the special bonds.

However, the lenders are required to establish yearly provisional funds amounting to 20 per cent of the value of the bonds they have bought from the company.

National Financial and Monetary Policy Advisory Council member Tran Du Lich said last year that, selling bad loans to the VAMC was a good way for banks to clean up their account balance, but the requirement for provisions would create significant pressure on them.

The SBV has been asking credit institutions whose bad debts account for 3 per cent of their total outstanding loans or more, to sell debts to the VAMC. This is in line with a national goal of controlling the overall non-performing loan ratio in the banking system at less than 3 per cent.

VAMC General Director Nguyen Huu Thuy told a meeting in Ha Noi last month that the company had issued bonds worth more than VND243 trillion (US$10.8 billion) to buy bad debts since its establishment.

Last year alone, the VND110 trillion ($4.89 billion) bond issuances helped reduce the bad debt ratio in the banking system to around 2.7 per cent.

The central bank reported in January, citing its regular survey, that 93 per cent of credit institutions expected their business performance to be better this year than last year, while 32 per cent hoped for "a much better result".

In the supplementary document, the SBV also requires lenders holding VAMC bonds with an extended term to focus their resources on handling bad debts when their financial situation improves. These lenders are not allowed to pay share dividends until bond payment is concluded.

The VAMC, run by the central bank, began operations in July 2013 with a charter capital of VND500 billion ($22.22 million). — VNS