Vietnam’s bad debt managers will propose legislation to overcome a regulatory vacuum that has hampered the sale of billions of dollars in soured loans at banks and state companies to investors.
Since the start of 2014, the Vietnam Asset Management Company has recouped less than 7 percent of the VND211 trillion ($9.4 billion) in bad debt it bought since it began operating in 2013, according to Chairman Nguyen Quoc Hung. Without a debt market or legal framework to sell to foreigners, the company known as VAMC, can only sell properties originally pledged as collateral for the soured loans or prod the borrowers to pay.
“We need some sort of special mechanism, separate regulations which can help us overcome all legal entanglements in the investment law, the land law and other related laws to be able to sell debt,” Hung said in an interview in Hanoi Tuesday. “Without such special rules, we can’t sell any debt.”
The VAMC will sign a cooperation agreement with the finance ministry’s Debt and Asset Trading Corp., or DATC, by the end of 2015 “to lay the foundations for a debt market,” Hung said. The two agencies expect the government to soon have regulations on debt trading, he said.
At stake is Vietnam’s ability to get past an overhang of bad debt that has hindered access to bank credit, posing an ever present risk to the economy’s recovery. The central bank aims to bring down bad loans at the country’s lenders to below 3 percent of total lending by the end of this month, compared to about 17 percent in 2012.
“By selling debt to the VAMC, banks will meet the central bank’s end-September deadline, but the question is how fast the VAMC can resolve the debt they bought,” said Bui Kien Thanh, an independent economist in Hanoi. “It will be tremendous progress if VAMC could get needed regulatory changes because under current laws, VAMC can’t do much. However I wouldn’t expect that to happen anytime soon.”
The VAMC will join DATC in proposing needed regulatory changes to the government to quicken the bad debt resolution process at banks and companies, Hung said.
The VAMC’s performance in numbers
- Bad loans bought so far this year: VND77.2 trillion
- Total debt bought since 2013 when VAMC started operation: VND211 trillion, exceeding its target of VND200 trillion
- Amount recouped by VAMC so far this year: VND8.3 trillion
- VAMC expects to recoup another VND4 trillion by end-2015. That would bring the total to about VND12 trillion this year, more than double the VND4.9 trillion last year.