VietNamNet Bridge - All the barricades that prevent foreign investors from buying bad debt from Vietnamese commercial banks have been removed, but everyone is still moving slowly and cautiously.

 

Truong Thanh Phuoc, deputy chair of the National Finance Supervision Council, said Decree No 34 amending provisions of Decree No 53 on the operation and structure of the Vietnam Asset Management Company (VAMC) stipulated new principles.

First, Decree 53 required issuance of special bonds to buy bad debt in accordance with book value, while credit institutions had to provide 20 percent per annum against risks.

Decree 34 stipulates that special bonds could be either 5-year or 10-year term ones, depending on plans to reshuffle banks, to be determined by the State Bank Governor.

This means that credit institutions will not have to make provisions immediately and at once, while they can reduce the provision rate gradually from 20 percent to 10 percent.

Second, banks will not sell bad debts based on the book value, but on the market price, while VAMC, the buyer, will pay in bonds, which, like cash, can be mortgaged to borrow money through OMO (open market operation).

Third, credit institutions will not be required to make provisions when receiving special bonds. In the past, special bonds could not be used as collateral, while they can now.

Phuoc commented that with amended regulations, the legal framework now creates conditions favorable enough to increase debt settlement.

However, Phuoc stressed that the debt settlement process will still depend on many other factors.

For example, if the National Assembly ratifies the new laws on real estate trading with reasonable provisions, investors will find it profitable to trade debts, and they will join the debt market.

Besides, the figures about the high GDP growth rates in 2014 and the first quarter of 2015 will give investors one more reason to increase their investment plans.

“Why not make investments if the economy is recovering and promising high growth rates?” he said.

The dong/dollar exchange rate stability will also encourage investors to proceed with their investment plans. 

It is not by chance that the Governor of the State Bank stated earlier this year that the dong will not lose more than 2 percent of its value in 2015.

When asked why foreign investors still have not taken the slightest attention to Vietnam’s bad debts, Phuoc said “foreign investors have not engaged in Vietnamese debts, but they are considering opportunities”.

“If you want to proceed, you need to go step by step,” he said, adding that the bad debt would be settled in three years.

Infonet