The VAMC will work as a special vehicle of the State to act on the principal of "revenue compensating expenditure" and it is a non-profit body that aims to minimise risks as well as expenditure in resolving bad debts.—Photo ndhmoney

The Vietnam Assets Management Company (VAMC) will begin buying bad debt after its official opening on July 26. The company's general director, Nguyen Huu Thuy and member of the National Financial and Monetary Policy Advisory Council Le Xuan Nghia discuss the issue with the Vietnam Enterprise Forum newspaper.

VAMC General Director Nguyen Huu Thuy:

Nguyen Huu Thuy

What is the VAMC's first task after its opening?

We will immediately carry out checks on the bad debt of credit institutions before working with those who need to sell their bad debt. After we reach an agreement on a solution to resolve the bad debt, we will sign contracts to purchase the debts from credit institution in two ways: we can buy bad loans at their book value by issuing special bonds, or at their market value by using other sources.

 Many experts say that Decree 53/2013/ND-CP on the establishment, organisation and operation of the VAMC does not fully reflect the real situation in regards to bad debt. What do you think about this?

According to the decree, VAMC will purchase qualified bad debt from credit institutions. The bad debts are from activities including granting of loans and purchase of enterprise bonds. However, the bad debts are required to have guaranteed assets with legal documents and papers. The most important thing is that the institutions still exist.

In my opinion, the decree's regulations suit the State Bank of Viet Nam's lending regulations and the real market as well.

Bonds issued by the VAMC are not guaranteed by the Government but only by the SBV. Is the liquidity of the bonds high?

The decree clearly states that the bonds can not be purchased in the market. They are seen as an acknowledgement of debt of the VAMC and the enterprises can use them to obtain financing from the SBV.

With a registered fund of VND500 billion, can the VAMC resolve a bad debt from VND40-70 trillion as expected by the SBV?

The VAMC will work as a special vehicle of the State to act on the principal of "revenue compensating expenditure" and it is a non-profit body that aims to minimise risks as well as expenditure in resolving bad debts.

The company's registered capital is small compared with that of other asset management companies in the world, but we can mobilise funds from various sources including issuing special bonds. Malaysia is a symbolic example when they successfully issued these kinds of bonds. In addition, the VAMC can borrow capital from domestic and international organisations.

Not only credit institutions with bad debt ratios of over 3 per cent will sell debts to the VAMC, but also those with rates of less than 3 per cent may sell their bad debts to the VAMC, which is always ready to discuss their bad debts.

Solving bad debts aims to ensure credit institutions end their troubles and better serve enterprises.

With Circular 02 on clarifying bad debt being delayed by one year, many experts said this gave the banks time to hide their bad debts in a bid to avoid working with the VAMC. Will the VAMC have any willing "customers" to resolve their bad debt?

The target of solving bad debt is to stabilise the macro economy and enhance credit. In fact, it's very difficult to know the exact figure on bad debts because criteria used by credit institutions to assess bad debt varies, but it's clear that they can not hide bad debt forever.

Assessment of bad debt is just one step, but it's important that the credit institutions need to acknowledge that solving bad debt is a necessary task that also serves their interests.

I want to stress that credit institutions will enjoy three things after selling bad debt to the VAMC. They include: removing bad debts from their financial balance sheet, having five years to ensure annual funds for provision for the VAMC bonds, and use of VAMC bonds to obtain financing from the SBV to boost their liquidity.

It's reported that Vietcombank announced its bad debt to be over 3 per cent and ABC recently voiced the possibility of selling its bad debt to the VAMC. What do you think about these cases?

Both Vietcombank and ACB are big banks with a robust finances. If they do not have a solution to solve their bad debts, they will have to bear many kinds of fees. Meanwhile, they still have to pay loan interest to the depositors while making provisions themselves.

How will the VAMC impact the economy? Are our expectations of the VAMC too high?

The Government is restructuring the economy in which banking is a part. The Government has a master plan to solve bad debt and restructure the banking system, and the VAMC is one of the tools that will be used to turn the Government's plan into reality.

Member of the National Financial and Monetary Policy Advisory Council Le Xuan Nghia:

Many people are still wondering about the operations of the VAMC in the coming months. The biggest question is why will the VAMC buy bad debts at their book value while debts are normally purchased at market prices?

Le Xuan Nghia

The way I look at it, this is because the majority of bad debts in Viet Nam are involved in real estate. Almost all major shareholders in the banking sector deal in property. Many enterprises, especially once-flourishing companies, have taken out huge bank loans to invest in property and many have seen difficulties in this area.

Some enterprises that are also bank shareholders can interfere in a bank's decisions to sell or not to sell debts. If a firm has a controlling stake at a bank and at the same time owes the bank money through a property mortgage, how can we define the firm's bad debt in regards to market prices?

In this case a fixed book value will make it easier for related parties to trade debts without enterprises' interference or bargaining, helping debts to be settled swiftly. Without prompt action, it will be hard for debt settlement to be successful. — VNS