Vietnam’s central bank is stepping up efforts to resolve soured loans and create favorable conditions for foreign investors as it draws up regulation to auction bad-debt assets of lenders.
The State Bank of Vietnam and the Ministry of Justice are trying to “quickly” complete legislation that will be a “crucial legal basis” for a government-backed asset management company, lenders and investors to buy and sell bad-debt assets and collateral at banks, Governor Nguyen Van Binh said yesterday in e-mailed responses to Bloomberg News.
Vietnam’s government set up the asset-management company, known as VAMC, last July, and allowed foreign investors to take bigger stakes in the nation’s lenders earlier this year. The nation’s gross domestic product is forecast to rise 5.8 percent in 2014, a seventh straight year of growth below 7 percent as the highest level of bad debt among Southeast Asia’s biggest economies curbs lending and hurts businesses.
“The government and the central bank encourage and want to create favorable conditions for foreign investors to participate in the sale and purchase of bad debt,” Binh said. The monetary authority and finance ministry will also soon create a legal framework to establish a regulated market to trade bad debt in Vietnam, Binh said, without giving details.
The dong was little changed at 21,099 per dollar as of 2:33 p.m. local time, according to data from banks compiled by Bloomberg. The benchmark VN Index (VNINDEX) rose 0.9 percent, heading for its highest close since Oct. 2009. It has gained 19 percent this year, the biggest advance in Asia.
The central bank lowered its refinance rate to 6.5 percent from 7 percent and the discount rate to 4.5 percent from 5 percent, effective yesterday. The repurchase rate was also reduced to 5 percent from 5.5 percent. The cuts were aimed at spurring credit growth and helping businesses, it said.
Lending dropped 1.05 percent as of March 13 from the end of 2013, according to the central bank. The government targets credit growth of 12 percent to 14 percent this year, and Prime Minister Nguyen Tan Dung last month asked the monetary authority to step up measures to lower lending rates.
Moody’s Investors Service estimated bad debt at Vietnamese banks comprised at least 15 percent of total assets in a note last month. The central bank disputed the assessment, saying non-performing loans in the system had dropped to 3.63 percent at the end of 2013.
The VAMC bought 39.3 trillion dong ($1.9 billion) worth of bad debt from 35 banks as of the end of 2013 and “will accelerate purchasing and resolving loans and collateral in the next few years,” Binh said. The governor had said in December the entity may purchase as much as 150 trillion dong of non-performing loans by the end of 2014.
In the case of borrowers who don’t have the ability to revive their businesses or repay their loans, the VAMC will sell their debt and collateral, Binh said. The VAMC will consider buying bad debt at market value when conditions mature, he said.
“Banks have become more willing to sell bad debt to VAMC now, including those who previously had doubts about VAMC’s debt purchasing ability,” Deputy Governor Dao Minh Tu told a conference in Ho Chi Minh City today. “We’re closely watching the performance of banks, especially those who have difficulties,” he said, adding that the monetary authority had encouraged lenders to restructure themselves through mergers and acquisitions or partnerships with foreign companies.
There is growing interest in a market for bad debt as Vietnam’s macroeconomic picture improves, said Tony Diep, Hanoi-based managing director at Indochina Capital, a fund manager and property developer. Inflation (VNCPIYOY) last month eased to 4.65 percent from a year earlier, the slowest pace since November 2009, while exports climbed 12.3 percent in the first two months of the year from the same period in 2013.
“There is more appetite now than before, given the stability of the currency,” Diep said. “Investors are more comfortable with the macro picture. If the government uses the money to invest in infrastructure growth, investors would like that.”
The central bank will weaken the dong when “truly needed” as pressure on the currency will be eased by a balance of payments surplus this year, Binh said. The monetary authority reiterated it won’t allow the dong to strengthen or weaken more than 2 percent against the dollar this year.