The VAMC may be able to solve only 20-30 per cent of bad debts this year by issuing bonds or buying debts at market prices. Photo vietnamnet.vn

HA NOI (Biz Hub) — The creation of the Viet Nam Asset Management Company (VAMC) is unlikely to fully resolve asset-quality problems by the banks unless accompanied by meaningful regulatory measures, global rating agency Fitch Ratings said on Tuesday.

The asset management company started operation on Tuesday under the direct control of the State Bank of Viet Nam (SBV).

The SBV claims that rate of bad debts from all types of borrowers was 8.8 per cent of all loans at the end of September last year, while the banks put this at 4.9 per cent.

Fitch believes an alternative for the VAMC is to recapitalise the banking sector, but this could prove costly.

The agency believes that bad debts are three to four times higher than reported by the central bank.

According to the central bank, VAMC will only purchase debts from companies with 65 per cent of mortgage assets in real estate.

Fitch says the VAMC could help ease liquidity pressure on the banking system because its bonds can be used for central bank funding.

According to the latest report from the Viet Capital Securities Company (VCSC), the VAMC may be able to solve only 20-30 per cent of bad debts this year by issuing bonds or buying debts at market prices.

On the other hand, the central bank expects the company to resolve 60-70 per cent (roughly VND80,000-100,000 billion, or US$3.8-4.7billion) of the debts in 2013. Its projected loan recovery rate this year is 20-40 per cent.

In the report, VCSC said that issuing special bonds was more feasible than buying debts at market prices as the VAMC had a charter capital of only VND500 billion ($23 million), much smaller than the non-performing loans.

It also said that difficulties may affect VAMC operations, such as the ineffectiveness of the capital market and non-performing loan-trading market; unclear and incomplete evaluation and classification of bad debts in banks; lack of high ranking officials and experienced experts to manage the VAMC - and lack of a financial support plan from the Government.

The VCSC report said that 30 out of 124 credit institutions had a bad-debt rate higher than three per cent, so they must sell toxic loans to the VAMC.

Among all listed banks, Vietcombank was the only one reporting its bad debt rate of 3.2 per cent in the first quarter of this year. Other banks including Sacombank, Vietinbank, Eximbank, Military Bank and Asia Commercial Bank all reported rates under three per cent. — VNS