Bank’s bad debt: easier bought than sold
The State Bank of Vietnam (SBV) has released an ultimatum for commercial banks that they must sell all their bad debts by the end of the third quarter of 2015.
Buying debts
Analysts said “not many things have been done” by the Vietnam Asset Management Company (VAMC), which is in charge of buying debt.
However, they said VAMC’s process of buying bad debts from commercial banks would proceed more quickly with many new regulations and the SBV’s strong determination to settle bad debts.SBV has asked commercial banks to sell at least 75% of bad debts by the end of the second quarter, and 100% by the end of the third quarter.
The amount of the bad debts banks have to sell will be set by the central bank.
Banks, in fact, have not neglected their task of clearing bad debts. Circular No 36 stipulates that only banks with a bad-debt ratio below 3% percent are eligible to provide credit and buy shares from other credit institutions.
Banks with high bad-debt ratios also face restrictions in opening new branches and providing new loans.
A report shows that VAMC has bought VND137 trillion worth of principal at VND108 trillion paid in special bonds.
It has permission to issue VND80 billion worth of special bonds this year, while planning to buy VND80-100 trillion worth of debts.
Selling debts
Of the VND137 trillion worth of bad debts purchased, only VND5.1 trillion have been settled through compulsory sale and other modes.
Nguyen Duc Kien, deputy chair of the Economics Committee, said that VAMC bought bad debts and then “put it over there”, because it does not know what to do with the debts.
Agribank’s loan worth VND400 billion provided to a three-star hotel developer in Bac Ninh province became a non-performing loan as the developer could not pay the debt.
Agribank sold the hotel to VAMC at VND360 billion, a very high price compared with the market price, estimated at VND200 billion.
However, VAMC cannot sell the hotel at VND200 billion because current laws do not allow it do this.
As such, Kien concluded, the only thing VAMC can do is to keep the hotel for five years before giving it back to the bank.
Dr. Can Van Luc from BIDV said a big gap exists between the price at which VAMC buys debts – equivalent to 80 percent of the debt value, and the price at which VAMC can sell debts – equivalent to 40-50 percent of the debt value.