Barriers still exist in debt trading market

Experts say that bad debts will be settled only if there is a debt market, but the market still has not taken shape because of the lack of a legal framework.

Since its establishment, the Vietnam Asset Management Company (VAMC) has bought VND280 trillion worth of bad debts with special bonds based on book value. However, the amount of settled debt is VND100 trillion only.

Bad debts moving around

The Q3 finance reports of commercial banks show a worrying problem that the bad debt is on the rise. This is attributed to the rapid increase in outstanding loans. However, analysts pointed out that there is another reason that banks have bought back the bad debts they had sold to VAMC before.

VietinBank, for example, in its biannual report, showed that it bought back all the debts sold before to VAMC. Vietcombank, Techcombank, Military Bank, ACB and VIB also no longer have any bad debt at VAMC.

VAMC is described as a ‘vault’ which keeps banks’ bad debts temporarily. It allows banks to ‘put bad debts aside’ and restore their capability of providing loans. In addition, they only have to make provisions against risks for special bonds than for bad debts.

As banks’ financial capability has improved, they are buying back the debt to accelerate the settlement process.

Deputy Prime Minister Vuong Dinh Hue, reporting to the National Assembly about the bad debt, said that bad debt figures in banks’ balance sheets is just 2 percent, lower than the 2.56 percent earlier this year.

However, if counting off-balance sheet bad debts and the debts sold to VAMC, the bad debt ratio of the entire banking system would be 6 percent.

Still awaiting legal framework

According to Tran Du Lich, a respected economist, when VAMC bought bad debts from banks with special bonds, this created a a 3-party relation among debtors, banks and VAMC.

That is why if VAMC wants to sell the assets mortgaged for loans, as it needs to reach agreements among three parties. In many cases, the agreements cannot be reached because each party has its own goals.

“If VAMC buys bad debts indefinitely, the debt settlement process will go more smoothly,” he said.

Meanwhile, other experts have repeatedly urged to form up a debt market. Doan Van Thang, an economist, said there must be a debt trading floor.

“Once such a trading floor is set up, debts will be put on sale on the floor and buyers will come,” he said.

Dao Van Hung, director of the Academy for Policy & Development, pointed out that the lack of a legal framework is the biggest problem hindering the development of the debt market in Vietnam.

According to a report on Vietnamnet