VietNamNet Bridge – Banks now queue up for their turns to sell bad debts to the Vietnam Asset Management Company (VAMC). They need to “clean up the balance sheet” by the time when the Circular No. 02 on classifying bad debts according to international standards takes effects, slated for June 1, 2014.

Commercial banks now see VAMC as a “savior” which can help them clear away the bad debts most quickly. Therefore, they have been trying to sell as much debts as possible.

In the fourth quarter of 2013 alone, SCB sold VND5 trillion worth of bad debts to VAMC to reduce the bad debt ratio to less than 3 percent as expected. Vietcombank has sold VND1 trillion, while BIDV has also sold VND1 trillion to VAMC.

It is expected that VAMC would buy VND30-35 trillion at minimum by the end of 2013. Some 20 credit institutions have offered to sell bad debts to VAMC worth VND40 trillion in total.

Analysts noted that at first, banks hesitated to sell debts to VAMC because they kept doubtful about the capability of the finance institution, but they later have to sell debts to VAMC as the only choice to “liberalize” themselves from debts prior to June 2014.

Tay Hang Chong, CEO of Mekong Bank, said that if banks can clear the bad debts and clean up the balance sheet now, it would meet fewer difficulties when the Circular No. 02 is officially applied.

Mekong Bank is one of the few banks which kicked off the bad debt settlement program very soon. Therefore, it does not think it is necessary to delay the application of the circular to give banks more time to get adapted to the new standards in non-performing loan classification.

The State Bank of Vietnam once decided to delay the implementation of the Circular No. 02, because the legal document, which requires imposing the international standards in debt classification, was believed to make banks’ bad debt situation more serious.

Vo Tan Hoang Van, Acting CEO of SCB, also thinks that the banks which can clear bad debts prior to June 2014, would have more advantages when the new circular takes effects. However, he denied the fact that banks sell debts to VAMC just to “make up their balance sheet,” affirming that banks deal with VAMC because they can see the benefits brought by VAMC.

Bankers and experts have kicked off a new debate about whether to delay the implementation of the Circular No. 02 once more.

Van from SCB warned that big difficulties would be put for commercial banks if the legal document takes effect in June 2014, because the circular setting up very high requirements on credit quality, will certainly lead to the sharp increase in the bad debts.

This would hinder the credit growth rate, while Vietnam strives to pump more capital into the economy to encourage business and production.

Nevertheless, experts believe that it would be better to delay the implementation of the new regulation once more, even though they predicted that the bad debt may increase by two folds if applying the new standards in the debt classification.

In the latest news, Dang Van Thao, Deputy Chief Inspector of the State Bank has affirmed that no further delay would be accepted.

K.Chi