Vietnam central bank says asset company will start operations in mid-July

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State Bank of Vietnam plans to start operations of its asset management company in mid-July to clean up nearly $5 billion of bad debt at lenders and accelerate the country's banking restructuring process.

"Banks must do two parallel duties: resolve bad debts and prevent existing loans from becoming bad ones," according to a statement on the government's website, citing central bank Governor Nguyen Van Binh at the mid-year review with the nation's commercial lenders.

Prime Minister Nguyen Tan Dung last month approved the formation of an asset management company, effective July 9, that will acquire non-performing loans from lenders.

Officials are under pressure to rejuvenate an economy that last year grew at the slowest pace since 1999, as one of the highest bad-debt levels in Southeast Asia crimped credit to businesses.

Lenders with bad-debt ratios of 3 percent and above will be required to sell their non-performing loans to the asset management company, according to a May 22 government statement. The company will have an initial registered capital of VND500 billion (US$24 million) and be overseen by the central bank.

The asset management firm is expected to resolve about VND100 trillion of bad debt, Vu Viet Ngoan, chairman of the National Financial Supervisory Commission, said last month. It will aim to clear VND40 trillion to VND70 trillion of non-performing loans this year, Governor Binh said on May 30.

Vietnam's banks reported bad debt made up 4.51 percent of total loans as of the end of March, Deputy Prime Minister Nguyen Xuan Phuc said on May 20. That figure compares with the central bank's estimate of 7.8 percent at the end of 2012.

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