VAMC splits banks’ positions

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The Vietnam Asset Management Company (VAMC) could radically attack banks’ bad debts (NPLs). However, a number of banks are sitting on the fence as when selling bad debts to VAMC to get special bonds in return, each year they need to make provision at least equal to 20 per cent of the bond value.

Banks argued that under current regulations they must make provisions only when bad debts appear on their balance sheets. But, if banks sell bad debts to VAMC, these debts will be removed from the balance sheets and why do they need to make provisions?

Mekong Bank chief executive officer Tay Han Chong assumed banks selling bad debts to VAMC was only a way to extend debt payment. After five years, if the VAMC failed to settle these bad debts, banks must repurchase these debts using special bonds and incur main responsibility for the bad debts.

A Ho Chi Minh City-based bank director  said bad debts would no longer be ‘an epidemic’ after the VAMC came into operation and brought forth effects. The VAMC would be an active supporter to credit organisations in settling bad debts.

The director, however, admitted the regulated 20 per cent, per year provision rate would make banks carefully about selling debts to VAMC.

“Banks must deduct their profits for making provisions. Therefore, selling bad debts to VAMC could not help them much,” said the director.

Sacombank’s deputy chairman Nguyen Gia Dinh said banks needed to ramp up efforts to combat bad debts as the VAMC would only help banks through extended payments, not radically settle bad debts.

National Financial and Monetary Policy Council member Cao Sy Kiem assumed the birth of VAMC helped ensure banks and businesses’ benefits, while not creating a precedent for using state budget capital to rescue firms.

“At least this measure helps extend debt payment by five more years instead of clearing bad debts at once, albeit banks would not be happy with the 20 per cent provision rate requirement. To weather hardships, banks and firms need to collaborate, but not overestimate VAMC performance,” Kiem said.