The Viet Nam Asset Management Company (VAMC) this year will use cash, departing from the usual practice of using only special bonds, to buy non-performing loans (NPLs). — Photo sbvamc.com.vn

Online newspaper Infonet quoted the company's chairman Nguyen Quoc Hung as saying that the new measure was aimed at accelerating the bad debt resolution process and supporting commercial banks so they have enough capital to boost their lending.

Under current regulations, VAMC issues special bonds in exchange for bad debts, which banks may use as collateral to secure funding from the central bank.

As most of the NPLs purchased from commercial banks are still stuck at the VAMC, experts expected that the step would help resolve the bad debt instead of moving it around.

Despite praising the new measure, however, experts are still concerned about the application, saying the size of the bad debts is large while the VAMC's capital source is limited.

Banking expert Can Van Luc told Infonet that the use of cash to clear the bad debt was very good for boosting the bad debt resolution process, but it was unclear whether VAMC had sufficient funds to buy the bad debts or whether this was just the first step to creating the next catalyst.

According to VAMC, the company plans to settle roughly VND30-35 trillion (US$1.33-1.55 billion) of purchased bad debts this year through retrieving the debts and selling them and mortgaged assets. The amount is nearly double that of last year.

Besides cash, the company will also issue roughly VND40 trillion of special bonds to buy bad debts from credit institutions this year.

NPLs in HCM City

On Thursday, Director of the State Bank of Viet Nam's (SBV's) HCM City branch To Duy Lam said that NPLs in HCM City in the first five months this year rose 4.46 per cent against the end of last year, of which potentially irrecoverable debts accounted for 72.8 per cent.

Nguyen Van Dung, director of the Banking Supervision and Inspection Agency in HCM City, said the rise was due to better debt classification. Previously, the debt classification was inaccurate and the authorities are now trying to make the domestic classification meet international standards.

In a government-sponsored project to restructure the banking system in the 2011-15 period, Lam said only two out of 12 joint stock commercial banks and a financial leasing company had failed to complete the approved restructuring plans as they were restructuring in accordance with the central bank's requirements.

According to the SBV's HCM City branch, the city's capital mobilisation in the first five months rose 4.46 per cent, while credit increased by 5 per cent. — VNS