VAMC allowed to issue 80tr dong special bonds for bad debt control

11-Mar-2015 Intellasia | Dau Tu Chung Khoan | 6:00 AM Print This Post

According to the decision of the State Bank of Vietnam (SBV), the Vietnam Asset Management Company is eligible to issue a maximum of 80 trillion dong special bonds in 2015. However, the question is whether that volume is enough to bring the bad debt ratio to below three percent at the end of 2015 under the direction of the government, while bad debts are expected to significantly increase after Circular 02 and Circular 09 of SBV take effect from April.

The most recent figures of SBV showed that at the end of October 2014, the total bad debts reported by credit institutions were approximately 167 trillion dong, equivalent to over 3.8 percent of total loans. Nevertheless, according to the credit information classification of Credit Information centre (CIC), bad debt ratio is about 5.3 percent, much higher than the target of three percent set for the banking system in the end of 2015 under the request of the government.

However, the experts’ most concern is that bad debts may increase again when regulations on debt rescheduling and keeping intact group of debt under Circular 09/2014/TT-NHNN (revised Circular 02/2013/TT-NHNN on classification of assets, levels and method of setting up risk provisions and use of provisions against credit risks in the banking activities of credit institutions and foreign banks’ branches) expire from April 1st 2015.

In fact, by allowing credit institutions to restructure time limit for debt payment and keep intact group of debt as in the present time has helped considerably slow down the growth of bad debts in the difficult economic context. When these provisions expire, it also means bad debts may increase rapidly. general director of a commercial bank said that banks must accelerate the settlement of bad debts right at the beginning of the year. In particular, from April 2015, credit institutions must evaluate the nature and quality of each debt.

Meanwhile, bad debts handling usually slows down in the early months of the year. Talking to Dau Tu Chung Khoan, chair of the Board Members of VAMC Nguyen Quoc Hung said that in the first six months of 2014, the company managed to buy only 14.857 trillion dong bad debts when the goal was to acquire 70 to 100 trillion dong. According to the above general director, the goals on settling and selling bad debts are usually not focused in the early year, as banks pay attention to promote credit growth. However, it must not happen this year.

At the beginning of the year, the SBV’s Governor issued Directive 02/CT-NHNN requesting banks to speed up bad debt handling, to ensure that by June 30th, 2015, at least 60 percent of the targeted number must be handled; and not less than 75 percent of the total bad debt expected to be sold to VAMC must be sold to VAMC; in order to bring bad debt ratio to below three percent at the end of the year.

To be well prepared for settling bad debts, at the end of last week, the SBV’s Governor has issued a decision allowing VAMC to release a maximum of 80 trillion dong special bonds to acquire bad debts of credit institutions. The time of the issuance is from January 1st 2015 to December 31st 2015. The tenure of the special bond is up to five years. Hung from VAMC said that 80 trillion dong is the total original value, and the actual value can be up to 100 trillion dong, adding that VAMC will promote the bond buying from the beginning of the year.

Thus, the total bad debts VAMC expected to buy in 2015 is equal to the amount of bad debts this organisation bought in 2014. VAMC approved to buy 95 trillion dong bad debts at the price of more than 70 trillion dong.

On the other hand, credit institutions are still positively handling bad debts by risk provisions as well as selling debts and collaterals, etc. With such drastic measures, it is possible that bad debt ratio will be lowered to below three percent at the end of 2015 as expected.


Category: Finance, Vietnam

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