HÀ NỘI — The State Bank of Vietnam (SBV) expects to soon issue new regulations on asset management companies under commercial banks, in a move to promote the handling of banks’ non-performing loans.

According to the SBV, it has finalised a draft circular regulating the activities of subsidiaries and affiliates of credit institutions involved in debt management and asset exploitation, and is making it public for comment.

The SBV issued Decision No. 1390/2001/QĐ-NHNN dated November 7, 2001, regulating the organisation and operation of debt management and asset exploitation companies under commercial banks (AMCs). However, due to changes in socio-economic conditions, the regulations are no longer suitable.

The activities of credit institutions are now more diverse than those at the time the decision was issued, so the acceptance and working of debts under the authorisation of AMCs need to be expanded to ensure the handling of bad debts arising in the operations of credit institutions, the SBV said.

Globally, AMCs are established based on various models, aiming to handle bad debts and restructure the assets of commercial banks. AMCs of commercial banks often operate with the goal of handling internal bad debts, or only buy regular debts in some special cases, such as when an enterprise has good loans but faces temporary financial difficulties, so the AMC can buy back the debt, restructure or resell it when the enterprise recovers, instead of allowing it to become a non-performing debt.

In Korea, major banks such as KB Kookmin, Shinhan and Woori all have their own AMCs. In China, there is a strong AMC system with ICBC, CCB and BOC having established their own AMCs for internal debt handling.

In the past, Việt Nam established an AMC to handle bad debts and outstanding assets of credit institutions. AMCs have helped credit institutions recover bad debts, restructure loans, and reduce bad debt ratios, which has cleaned up the balance sheets of credit institutions and helped them operate more safely and effectively.

Therefore, it is necessary to continue pursuing the goal of handling bad debts through AMCs.

Currently, nearly 50 per cent of bad debts are handled by banks through risk provisions. Meanwhile, the sale of bad debts at market value is minimal because the bad debt trading market is almost non-existent.

Finance and banking expert Dr Nguyễn Trí Hiếu said that one necessity is to accept that banking activities always go hand in hand with bad debts. Therefore, a legal framework is needed to clean up and handle the debts publicly in an open market that has proper commercial transactions.

However, a true market for bad debt trading still does not exist in Việt Nam; most activity remains confined to balance-sheet transactions between banks and the Vietnam Asset Management Company (VAMC). The debt trading market has not really opened up for investors to participate in, Hiếu said.

“It is time to handle bad debt through opening up the market. When Việt Nam wants to become a part of the global financial market, it must have a strong balance sheet. If the country wants to have a source of credit for domestic enterprises, it must open the door to its bad debt trading market. Việt Nam needs capital of foreign investors to support bad debt settlement,” Hiếu said.

In reality, the Vietnamese bad debt market is large enough to attract foreign investors. Many foreign investors such as the Korea Asset Management Corporation (KAMCO), the OK Debt Trading Company and the Welcome Debt Trading Company have been interested in exploring investment opportunities in the Vietnamese debt trading market.

Therefore, experts and banks believe that the issuance of the new circular on AMC and the supplementation of some provisions under Resolution No. 42/2017/QH14 on piloting the handling of bad debts of credit institutions into the amended Law on Credit Institutions will stimulate the development of the debt trading market and attract foreign investors. — BIZHUB/VNS