Banks buying back bad debts from VAMC

Banks are scaling up efforts to tackle bad debts on their own

As of December 31, 2017, Vietcombank, a major local bank, reported a 1.1 per cent bad debts rate, the lowest in the banking system. Its provision fund came to around VND8.113 trillion ($360.5 million), 1.3 times more than the volume of its bad debts.

Vietcombank has been buying back debts it had earlier sold to VAMC to tackle them itself, an initiative that was instrumental to the bank’s rosy debts situation. Accordingly, in 2016, the bank bought VND4.3 trillion ($191 million) of bad debts from VAMC and tackled them with its own resources.

The move has impacted other credit institutions.

In 2016, privately-held Vietnam International Bank (VIB) has bought 30 per cent of the bad debt volume it had sold to VAMC.

Last year, the bank bought back an additional VND1 trillion ($44.4 million) worth of debts and is set to buy back the remaining debts it had sold to VAMC in the middle of the year.

At its recent annual shareholders’ meeting on March 31, 2018, chairman at Ho Chi Minh City-based OCB Trinh Van Tuan said the bank’s bad debts rate was cushioned to 1.48 per cent by the end of last year and its bad debts at VAMC remained at VND728 trillion ($32.3 million).

The bank’s bad debts rate rose to 2.16 per cent if the debt volume at VAMC was taken into account.

A bank source revealed that OCB is likely to buy back its entire VND728 billion ($32.3 million) worth of bad debts at VAMC this year and will have no need to set up a provisions fund.

According to SCB’s general director Vo Tan Hoang Van, the National Assembly’s Resolution No.42/2017/QH14 which has piloted bad debts settlement leveraging new breakthrough measures and more favourable market conditions have facilitated banks’ efforts in tackling bad debts.

SCB succeeded in taking back and tackling about VND4 trillion ($177 million) worth of bad debts last year and set the figure at VND4-5 trillion ($177-222 million) this year.

According to privately-held VPBank executives, they completed taking back nearly VND3 trillion ($133.3 million) of bad debts last year, including around VND1.1 trillion ($48.8 million) of VAMC debts.

Financial expert Bui Quang Tin stated that banks bought back the bad debts they have sold to VAMC as most of these debts have collaterals in the form of real estate assets, which allows banks to tackle them and reduce the pressure of loss provisioning.

The total debt volume of Group 5, which might not be recovered, shed 8.3 per cent last year compared to the beginning of the year, falling to VND20.725 trillion ($921 million), making up 34.2 per cent of total bad debts in the banking system.