Vietnam must accept market prices on bad debts

02:20 PM @ Friday - 31 October, 2014
Vietnam's central bank should allow its asset-management firm to sell bad debt at market prices, or it will fail to tackle the debt problem, economists say.

The Vietnam Asset Management Company (VAMC) has sold VND3.5 trillion (US$164 million)--or only 3.9 percent-- of the VND90 trillion ($4.2 billion) worth of non-performing loans it has purchased from banks since its formation in July of last year, official data showed.

Banks trade their non-performing loans to the VAMC in exchange for special bonds that they can use to obtain loans from the central bank.
The VAMC then has the right to sell debts and collateral if borrowers are unable to revive their businesses or repay their loans.

However, few investors were willing to buy bad debts and collateral as the VAMC offered them at above market prices, said Nguyen Duc Kien, deputy chairman of the National Assembly’s Economic Committee.
“If the VAMC sells such assets at lower prices, it will suffer losses,” he said, adding it didn't dare create losses to the state.

For this reason, Kien said: “It is essential to let the VAMC operate with a more special scheme.”

Kien proposed that the VAMC weed out its property-related debts and sell them at a loss given that the real estate sector has yet to recover.
Those losses can be offset by the sales in other groups, he continued.

Kien did not explain what the VAMC should do if no one wants to buy non-real estate related bad debt at the prices they're offering.
That said, Economist Tran Du Lich, a prominent lawmaker, echoed Kien’s idea.

“The State Bank of Vietnam [the country’s central bank] should coordinate with relevant authorities to amend the 2013 decree, granting proper rights to VAMC and letting it actively resolve bad debts and collateral problems he said.

The VAMC buys debt from banks for as much as 80-90 percent of its value, which is far more than investors would be willing to purchase it for, The Diplomat reported in August.

“They [the foreign investors] tend to offer market price for such assets, as low as 20-30 percent of par value. VAMC considers such offers quite inadequate considering the asset values,” the magazine quoted Andy Ho, chief investment officer at VinaCapital, as saying.

“VAMC can be an effective instrument to resolve bad debts only if it is willing to put debts on sale and accept the best offers that can be obtained from the market,” said Ho.

Rising bad debt

Bad loans in Vietnam’s banking system amounted to 3.9 percent of total lending as of late August, up from 3.61 percent in December of last year, Prime Minister Nguyen Tan Dung told the National Assembly during its opening session on Oct. 20.

This number excluded the debts scooped up by the VAMC.

Soured loans among Vietnamese banks have led to a tightening of credit needed to boost weak consumer spending and keep businesses afloat.
More than 70,000 firms dissolved, went bankrupt or ceased operating during the first nine months of this year, according to the finance ministry.

Many either did not qualify for loans needed to salvage their businesses or were put off by high interest rates.

Cedit expanded by 7.9 percent between the end of last year and Oct. 24, the central bank said Tuesday. It expects to reach the entire year's credit growth of 12 percent to 14 percent.

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