Mr. Nguyen Quoc Hung.

Circular 02 on bad debt classifications and risk provisions will come into effect by April this year, Chairman of the Vietnam Asset Management Company (VAMC) Nguyen Quoc Hung has revealed. He made the announcement while talking to the local media about his company's targets and the methods the company will use for handling bad debts in 2015.

What will the VAMC target this year?

2015 is the year credit institutions will have to follow Circular 02 on bad-debt classifications and risk provisions that will become effective by April. In this way, the credit institutions will have to classify and evaluate their customers by following international rules.

They will also assess the quality of every debt. I believe that debt owners should take the initiative of selling their debts to the VAMC this year.

We have defined that we will increase the purchase of bad debts from VND70 trillion (US$3.33 billion) to VND100 trillion ($4.76 billion) this year. The company is aiming to resolve debts worth between VND8 trillion and VND10 trillion ($380.95 million and $476.19 million), which is double as many as last year. The debts will be purchased at the prevailing market price, which is a method that has been submitted to the State Bank of Viet Nam for approval.

However, with a working capital of VND500 billion ($23.8 million), it is very difficult to buy the debt at the prevailing market prices. The capital will be used to buy small debts. The most important thing will be to gain experience for the times when we have sizeable funds so that we do not get caught in an embarrassing situation.

In addition to the purchase of bad debts at prevailing market prices, we also need to be financed more, meaning that our working capital should be raised to at least VND2 trillion ($95.23 million)—a financial basic that will help us build a corporate bond issuance method in order to buy bad debts at market prices.

At the same time, we will continue to restructure debts, adjust debt terms and interest rates, and co-ordinate with credit institutions to resolve the debts of our customers. We expect that the VAMC will work together and share with credit institutions and customers, rather than act as a "tool" to buy bad debts and then sell them.

Does the VAMC meet difficulties in resolving bad debts after buying them?

Yes, the company has encountered many difficulties while trying to resolve bad debts.

The first one is revoking debts. In some cases, we worked in detail with customers, following which both parties reached an agreement, but when the time to hand over assets drew closer, difficulties arose.

There was a case where both the VAMC and credit institutions agreed to allow customers to have an additional three months for restructuring and finding funds to pay their loan, but when the deadline passed, the customers refused and deliberately delayed repayment. Therefore, in my opinion, it is necessary to impose serious sanctions on borrowers who are unable to pay their loans and brazenly refuse to do so.

The second difficulty is auctions. Agribank is an example where a bank faced difficulties while auctioning debts. The bank had conducted 5 to 7 auctions, which took nearly a year to successfully auction its debt in accordance with the regulations. The VAMC itself recently spent four months to successfully auction a debt.

It can be said that resolving debts is very difficult. Even in cases where auctions receive strong support from both credit institutions and businesses, it is still extremely difficult and complicated to resolve a dispute or disagreement between the two sides.

What measures will the VAMC implement to resolve debts quickly?

I think, first of all, debts can be resolved quickly if all sectors at different levels come on board to participate in the process.

Secondly, it is necessary for us to prove that the businesses' projects are unsustainable, however long they may be.

Thirdly, to make businesses agree to liquidate their assets, it is important for them to reduce their reliance on the real-estate market, in which prices are expected to increase in the future. If we can persuade them accordingly, they might be willing to sell their property to pay off their debts.

Fourthly, another impediment faced by the VAMC is the liquidation of guaranteed assets below their original price. For example, a guaranteed asset had earlier been assessed at VND150 billion ($7.14 million), while the business's debt was worth VND100 billion ($4.76 million). However, the asset was liquidated for VND70 billion ($3.33 million), resulting in the balance sheet being short of VND30 billion ($1.43 million).

The VAMC wants to speed up the handling of bad debts after buying them, but one should not be hasty and should try to select the most reasonable method that takes into account the agreement of all the parties involved.

What is the total value of bad debts bought by the VAMC?

The VAMC plans to buy bad debts worth about VND70-VND80 trillion ($3.33 billion-$3.8 billion) from credit institutions in 2014, but the figure is estimated to be between VND90 trillion ($4.29 billion) and VND95 trillion ($4.5 billion), with a buying price of VND70 trillion. A number of VAMC's special bonds worth VND58 trillion ($2.76 billion) were issued last year. — VNS