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|SeABank is among 12 banks that have so far cleared all their bad debts kept at the Viet Nam Asset Management Company (VAMC). - Photo SeABank|
The banks include Vietcombank, Techcombank, MB, VIB, OCB, Nam A Bank, TPBank Agribank, VPBank, ACB, SeABank and Kien Long Bank.
Previously in 2013, VAMC accepted to buy bad debts of banks in a move to reduce the bad debt ratio of the entire banking system. Many banks had to sell bad debts to VAMC so they could take the debts off their balance sheet to have a bad debt ratio of below 3 per cent as required by the central bank and could continue their operations as normal banks.
By selling the debts to VAMC, instead of money, banks received five-year special bonds from VAMC. During the five years, banks had to make provisions of 20 per cent for special bonds each year. In principle, this affects banks’ annual profits.
According to experts, when the on-balance sheet bad debt ratio at banks is low and banks have gained fairly high profits in recent years, the trend of buying back bad debts to clear debts at VAMC is becoming more common.
Banks also have to speed up the resolution of bad debts to meet the State Bank of Viet Nam’s regulation. According to the central bank’s regulation, VAMC was to keep the bad debts for only five years, and the deadline for the debts to return to the banks is 2020.
If a lender misses the deadline it faces penalties, including suspension of the right to pay shareholders dividends in cash. The dividends will instead be used for settling the bad debts.
According to Doan Van Thang, VAMC this year expected to basically complete the handling of purchased bad debts from credit institutions, excluding those from weak ones, as stated in Decision 1058 on restructuring credit institutions associated with dealing with bad debts in the 2016 to 2020 period.
VAMC would increase the purchase of debts at market prices according to plans approved by SBV.
VAMC reported that it purchased bad debts with special bonds of 381 debts worth VND20.54 trillion last year.
Another 37 bad debts were also purchased according to the market price at VND2.25 trillion.
Accumulated from its establishment until December 31, 2019, VAMC cooperated with credit institutions to recover VND151.86 trillion of bad debt.
VAMC increased its charter capital to VND5 trillion last year by the SBV and the Government.