Photo: Duc Anh
Most debts recovered via selling of real estate put down as collateral, which should be boosted by introduction of new auction law on July 1.
The Vietnam Asset Management Company (VAMC) has recouped only 17.8 per cent of toxic debts purchased from troubled banks, primarily by selling properties used as collateral, according to recently released data.
Vietnam has been restructuring a banking sector saddled with bad debts, which had been cut to 2.46 per cent of total outstanding loans in November 2016 from 17.2 per cent in September 2012. The government set up VAMC in 2013 to help consolidate the country’s fragmented banking sector.
While loss of asset value from sales has always been a problem for VAMC’s performance, there is currently a lack of proper policy to improve such sales.
VAMC has purchased VND282 trillion ($12.4 billion) worth of bad debts to rescue 42 banks from either bankruptcy or major losses. Sixty-two per cent of toxic debts, worth VND268.8 trillion ($11.8 billion), purchased by VAMC are real estate mortgages.
Only Vietcombank has finished cleaning up all of its debts sold to the VAMC. The initial amount of cumulative debts was VND6.5 trillion ($288 million), while the value of VAMC’s bonds in exchange was only VND4 trillion ($177 million).
“Higher credit costs make the economy more rigid,” said Mr. Truong Van Phuoc, Vice Chairman of the National Financial Supervisory Commission, implying that even though those costs are incurred by banks, most companies in Vietnam that remain heavily dependent on bank loans feel a significant impact.
Apart from the establishment of VAMC, the central bank has also adopted several other measures to ensure safety and stability in the banking system, including the buy-out of three troubled lenders: Global Petro Bank, Vietnam Construction Bank, and Ocean Bank.
Vietnam is forecast to need $25 billion to clear toxic debts off bank books, equal to 13 per cent of the country’s GDP, Mr. Phuoc told a National Assembly (NA) meeting late last year.
Overhanging bad debts have been a burden on Vietnam’s economic growth since 2012, when total bad debts, mostly in the real estate sector, reached VND280 trillion ($12.5 billion), equivalent to 11 per cent of GDP.
Though the bad debt rate remains below the limit, 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,” 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 hasten bad debt settlement.
Last November, the NA passed the Law on Property Auctions, which would 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 VAMC will be empowered by the Law to auction bad debts and collateral belonging to financial institutions. The government will specifically regulate auction procedures for high value debts under the Law, to guarantee the sales of high value assets does not result in debts losing value and causing losses for the State.