Vietnam's government approved on Tuesday the formation of an asset management firm to buy bad debt from its troubled banks, an official said, a move that could help stimulate an ailing economy growing at its slowest pace in 13 years.
The long-delayed "bad debt bank", the Vietnam Asset Management Corp (VAMC), would be run by the State Bank of Vietnam (SBV) and is tasked with trimming down what is widely seen as Asia's highest ratio of non-performing loans (NPLs).
"The SBV has received information that the government has approved the plan for the VAMC," Trinh Ngoc Lan, a State Bank of Vietnam official told Reuters, adding that details of when and how the firm would operate were not yet available.
Banks saddled with toxic debts, about half taken out by state-run firms, has been a drain on Vietnam's once thriving economy, squeezing credit growth and consumer spending, sinking the real estate market and contributing to the closure of an estimated 113,000 firms since 2011.
Hopes that the VAMC could offer some relief to the economy sparked a rally this week on the benchmark VN index, driving the bourse to a one-month high on Tuesday, led by bank and property-related stocks.
The government sought to paint a rosier picture of the debt problem in the banking sector on Monday, announcing to parliament that NPLs accounted for 4.51 percent of total loans, a figure calculated from information provided by the banks themselves.
The government said in February that bank NPLs stood at 6 percent, or $7.8 billion, but independent economists estimate the figure could be as much as three times higher and warn that the $24 million capital the VAMC will operate with is insufficient.
Central bank deputy governor Dang Thanh Binh last month told Reuters the VAMC would initially buy NPLs in real estate only, in return for special bonds that can be used to borrow from the central bank to boost lending and stimulate an economy that grew just 5.03 percent last year.
The VAMC could fix half of the NPLs in the banking system, Binh said.
Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, estimated the VAMC would tackle about 100 trillion dong ($4.8 billion) of bad debt on the books of banks.
"The VAMC is not a magic wand to settle all the problems, it will be just a part," Ngoan told financial news website (ndhmoney.vn) on Tuesday. "There need to be other measures."