Vietnam’s Government has signed the Decree to establish the Vietnam Asset Management Company (VAMC) after many recommendations and considerations. The public is waiting to see how VAMC will deal with an immense amount of bad debts.
The Decree ratifying the establishment of VAMC was signed by Prime Minister Nguyen Tan Dung on May 21 and will go into effect from July 9.
Accordingly, VAMC is specially designed as a one - member limited company with 100 percent of chartered capital belonging to the Government and under supervision of the State Bank of Vietnam (SBV). VAMC’s chartered capital is provided from legal capital of the SBV.
The Government’s Decree stipulates that VAMC will buy bad debts of credit institutions based on their book value by specific bonds issued by the company. These bonds will be issued under the forms of certificates, book entries and electronic data with par value equal to price of bad debts. They are quoted in VND with a 5 year maturity and zero-coupon, used to get re - financing loans from the SBV. Moreover, VAMC will buy bad debts of credit institutions based on market value by different measures other than specific bonds.
Bad debts must fully satisfy five conditions to be bought by the VAMC, namely bad debts of credit institutions including those resulting from granting loans, buying corporate bonds, corporate bond commission, commission of granting loans and other activities in compliance with SBV’s regulations; asset - secured loans; bad debts, collaterals in compliance with law, and with legal records; bad debts with borrowers still available; and the amount of bad loans not lower than the amount required by the SBV.
On the other hand, bad loans of credit institutions bought at market price by financial resources other than specific bonds must meet the following requirements: satisfying the above mentioned 5 conditions; being likely to be completely returnable; their collaterals must be marketable; customers are expected to recover their creditworthiness.
The company buys bad debts of credit institutions at market price based on the agreement and value of bad debts as re-assessed.
It means the company will estimate again the value of bad debts based on their recoverability and collaterals; it can hire consultants to evaluate bad debts and collaterals if necessary.
The problem is at which price will bad debts be sold? Learning from the Asian financial crisis in 1997 in Thailand, bad debts of the banking system continuously increased, reaching the peak of 46 percent of total loans and putting pressure on the Government to have timely solutions. The Thai Government spent 17 cents buying US$1 of bad debts. In another case, Ireland spent 40 cent for US$1 of bad debts which was then purchased at 65 cent by a debt management company. It needed a second assessment, lowering to 25 cent for 1US$ of bad debts. In fact, the economy in Thailand recovered more rapidly because bad debts were solved more quickly at lower prices. At present, it is too soon to evaluate the prices of bad debts in Vietnam.
After buying bad debts, VAMC provides solutions to support and reduce difficulties for enterprises that have debts sold to VAMC such as: adjusting repayment terms; reducing or exempting all overdue interest; investing, and providing capital to help enterprises deal with temporary financial problems. These enterprises will be able to continue getting loans from credit institutions according to current regulations.
These solutions are expected to solve bad debts to help enterprises access new financial resources to recover production.
Because of its important role, VAMC gets interest from the public and business community. In the report assessing drafts that amend and supplement several conditions of Laws on Corporate Tax and Laws on VAT, Finance and Budget Committee of the National Assembly has agreed to exempt both types of tax for VAMC to support its activities.
Bao Chau
Vietnamese
