Bad Debt Trading to Go on Exchange in 2026

9:47:32 AM | 31/12/2020

 “In the 2020-2025 period, the Vietnam Asset Management Company (VAMC) must complete the establishment and operation of the debt exchange and complete the market price-based debt purchase target as approved. Annual plans are set 5-10% higher than the targets,” said Deputy Governor of the State Bank of Vietnam Dao Minh Tu.

Based on its functions and duties, VAMC is allowed to buy and sell bad debts. Based on the proposal submitted by VAMC, the State Bank will consider and approve, if all conditions are met, the formation of this exchange. This agency also assigned VAMC to complete the establishment and commissioning of the Debt Exchange before 2026.

VAMC will administer debt exchange

Assessing VAMC's current debt trading, Deputy Governor Dao Minh Tu said that VAMC’s debt trading is currently very positive. However, until the technology is ready, the SBV will license trading on this exchange.

Recently, the State Bank issued a decision approving the VAMC Development Strategy to 2025, with a vision to 2030. Among them, there is remarkable information that the SBV will require VAMC to complete the establishment and operation of the Debt Exchange before 2026. Specifically, in the past 2019 - 2020 period, VAMC performed well in its central role on the debt trading market. However, in order to ensure the transparency of debt trading as well as allow credit institutions to advertise their debts, the debt exchange establishment is necessary.

Since Decree 42/2017/QH14 on piloting the settlement of bad debts of credit institutions was enacted, the debt exchange establishment was mentioned. However, without technology and a legal corridor, the initiative of setting up a debt exchange has not been implemented. Since then, the debt purchase and sale with credit institutions has been assigned to only VAMC, initially forming a debt trading market in Vietnam. After Resolution 42 took effect until the end of the third quarter of 2020, VAMC handled about VND313 trillion (US$13.6 billion) of bad debts, of which, on-balance sheet bad debt settlement was over VND167.9 trillion, accounting for 53.8 % and off-balance sheet debt handling was VND74.9 trillion. The bad debts sold to VAMC in the form of special bonds handled more than VND69.5 trillion.

Mr. Do Giang Nam, Deputy Director of VAMC, said, VAMC previously proposed setting up the debt exchange and this approval will inspire us to embark on the project as soon as possible to submit to competent authorities for approval. VAMC will be the founder and operator of the debt exchange. I believe that in the 2020-2025 period, VAMC will complete establishing and operating the debt exchange. In the 2026 - 2030 period, VAMC will expand its operations to buy and sell debts and assets of all economic sectors. The company will foster asset investment and exploitation, asset trading brokerage consulting and asset valuation.

In order to fulfill the responsibility of administering the debt exchange, from now until the launch of the exchange, VAMC must advise on building a legal framework for debt trading on a concentrated market in Vietnam.

Completing the legal framework

While building the debt exchange, authorities must complete the legal corridor for the development of the debt trading market and build and issue debt valuation standards to create a legal basis for the operation, he said.

In the VAMC Development Strategy to 2025, with a vision to 2030, the State Bank of Vietnam stated that, while completing the establishment and operation of the debt exchange, VAMC must build a debt/asset data center at VAMC. The center must be connected with the National Credit Information Center (CIC) and credit institutions for information sharing and for choice of debt/asset handling.

In addition, VAMC will necessarily form and operate an online auction exchange to foster asset auction at VAMC; boost financial investment to build the path to become an intermediary institution of financial consulting services and strategic partnership development services for investors, basing on VAMC's knowledge of goals, economic sectors and industries. The State Bank also requested VAMC to cooperate with domestic and foreign investors to participate in corporate restructuring and corporate debt trading in accordance with laws on bad debt settlement.

In order to increase VAMC's resilience in the debt trading market, the State Bank decided to submit the plan for raising VAMC’s registered capital to VND10 trillion in 2020-2021 to competent authorities for approval. The SBV will strictly supervise VAMC’s use of more added capital to ensure operational safety and performance, such as promoting debt collection and market priced debt purchasing.

In particular, the State Bank also asked for permission allowing VAMC to mobilize capital from domestic and international organizations and individuals under the law. This is a new point for VAMC to have enough financial health to operate the concentrated debt trading market in the future.

“Debt trading is already active but we do not have a truly official market. Therefore, the establishment of the debt exchange, a stepping stone for the form a centralized debt trading market where other economic entities will join, thus helping increase the liquidity of the debt trading market, and attract more investors as well as capital flows. The establishment of a debt exchange will promote and develop the bad debt trading market in Vietnam,” said SBV Deputy Governor Dao Minh Tu.

Source: Vietnam Business Forum