08/Oct/2020Remove the ‘bottleneck’ in the bad debt trading market

14-Oct-2020 Intellasia | Dien dan Doanh nghiep | 6:02 AM Print This Post

According to data from the Vietnam Asset Management Company (VAMC), as of August 2020, the accumulated purchase of debt with special bonds reached 329.007 trillion dong. In which, buying debt with special bonds after the effective Resolution 42 reached 67.612 trillion dong, debt purchase at market value from 2017 to 2020 reached 8.341 trillion dong. Debt recovery results from collateral handling measures increased by 1.5 times compared to the previous period. Recovery from debt sale measures increased more than four times compared to the previous period…

In particular, after the issuance of Resolution 42, VAMC was approved to increase its charter capital to five trillion dong in order to increase resources for buying debt at market value and implemented a series of market development solutions for bad debt trading. Currently, the debt trading market in Vietnam has the participation of nearly 40 enterprises. However, debt trading activities in Vietnam are still mainly in the primary market, bad debts of credit institutions are sold directly to government-established debt trading and settlement organisations. Debt Trading Company Limited (DATC), VAMC, or other debt trading organisation to recover debt.

Meanwhile, the number of debt trading transactions among investors on the secondary market is relatively limited. The reason is partly that there is no professional bad debt trading floor in Vietnam for credit institutions and investors to access, exchange information and perform bad debt transactions. This also makes the debt trading market not develop as expected.

According to PhD. Nguyen Tri Hieu, Specialist in finance and banking, the most important thing is how to attract foreign investors to buy and sell bad debts. However, Vietnam does not have an official and professional market, which has hindered the debt trading of foreign investors. Therefore, in order for this market to be active, it is necessary to remove the current “bottlenecks” that prevent debt trading at market prices and increase liquidity for this market.

Up to now, the legal regulations on handling bad debts in general and the handling of collateral of bad debts in particular have many shortcomings, overlapping, and have not created an open legal corridor for banks to handle bad debt. Specifically, there are no specific regulations on debt valuation criteria as a basis for price appraisal organisations to carry out. The enactment of a complete and solid legal framework for bad debt handling not only helps banks reduce anxiety in dealing with bad debts, but also makes investors feel more secure when participating in this market.

Therefore, in order to create and develop a debt trading market, Nguyen Giang Nam, deputy general director of VAMC, said that it is necessary to soon complete the legal corridor on debt trading market development, building and promulgating. Debt valuation standards create a legal basis for implementation and establish the Association of Debt Trading Companies (AMCs) to connect, share information and transparently information goods (bad debts and security products) … Besides, there should be policies to encourage investors, including foreign investors to participate in the bad debt trading market through increasing creditors’ rights. According to Nguyen Giang Nam, to do this, it is necessary to soon legalise Resolution 42 and complete the legal corridor, consider amending a number of relevant specialised Law: Land Law, Civil Code… to agree set with the provisions in Resolution 42.

Nguyen Kim Anh, deputy Governor of the State Bank of Vietnam (SBV), said that in the near future, to ensure the high efficiency of bad debt handling under Resolution 42, SBV will continue to coordinate with relevant ministries, departments and agencies, proposing to the government solutions to completely solve the difficulties and problems in the mechanism as well as in practice to apply Resolution No. 42; examining and studying the legalisation of bad debt handling in order to provide specific regulations on the handling of bad debts and collateral of bad debts of the whole banking system; enhance the role and capacity of VAMC and create motivation for credit institutions to effectively handle bad debts; develop a project to restructure the system of credit institutions for the period 2021-2025.

 

Category: Finance, Vietnam

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