Photo: Duc Anh
Legislation to be introduced allowing for sale of bad debts and collateral via auction.
The National Assembly (NA) has passed the Law on Property Auctions, which will facilitate bad debt resolution where it involves property assets.
The Law has been delayed for some time due to differing views on property ownership but will now come into effect on July 1, 2017.
Analysts believe that the Vietnam Asset Management Company (VAMC) will be empowered by the Law to auction bad debts and collateral assets belonging to financial institutions.
The government will specifically regulate auction procedures for high value debts under the Law, to guarantee the sales process of high value assets is not reduced and result in debts losing value and causing losses for the State.
VAMC will be permitted to sell bad debts and collateral assets belonging to financial institutions by either organizing auctions or engaging an auction company. The State Bank of Vietnam (SBV), the Ministry of Justice, and relevant authorities will be responsible for the supervision and inspection of auctions of bad debts and collateral assets.
Set up in 2013 to deal with the country’s bad debt situation, VAMC reports to the SBV and the Ministry of Justice yearly or as requested.
Many insiders believe this is a breakthrough solution from the government. “Loss of asset value from sales has always been a problem for VAMC,” former SBV Governor Cao Sy Kiem told VET.
Bad debts have simply been “parked” at VAMC and Mr. Kiem believes all banks will have to set aside part of their profits each year to settle bad debts. Most bad debts, he said, “came from State-owned enterprises.”
The banking system had reportedly tackled VND548 trillion ($24.5 billion) worth of bad debts as at the end of August, with 42.8 per cent purchased by VAMC. A total of VND227.8 trillion ($10.2 billion) worth of non-performing loans from banks have been acquired by VAMC, the company said in late October.
It has only recouped about 15 per cent of the bad debts, however, mainly by selling properties originally put up as collateral on loans in the real estate sector, which accounts for 63.5 per cent of total non-performing loans.
The VAMC was initially expected to fix half of the non-performing loans in the banking system but progress has been slow due to insufficient operating capital.
Bad debts in Vietnam’s banking sector were reported at 2.66 per cent as at August 31, below the warning limit of 3 per cent, SBV Deputy Governor Nguyen Thi Hong told an October meeting with the NA before the ongoing session opened.
Though the bad debt rate is below the limit, Mr. Kiem believes it does not reflect the state of affairs in the banking system. “There are some banks with 50 per cent bad debts and some with 1 per cent bad debts,” he said.