Bank for toxic debt planned in Vietnam

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dong bundleVietnam’s banks will soon be able to sell their amassed bad debts to a newly established asset management company, the country’s state bank announced on May 16.

Bank with bad-debt ratios of 3 per cent and more will be required to comply and move their loans to the the Vietnam Asset Management Corp (VAMC), according to State Bank of Vietnam Chief Inspector Nguyen Huu Nghia.

The company will, however, have a starting capital of just $24 million.

The State Bank of Vietnam estimates bank non-performing loans at 6 per cent, or $7.8 billion, of total outstanding loans of $130 billion.

According to analysts, the real level of toxic loans could be at least three times that estimate, or more than $23 billion. At best, the capital of the proposed bad-debt bank would be only one-third of one per cent of the outstanding bad loans and probably represents only working capital.

VAMC will initially buy only bad debts taken out for real estate mortgages. Debt would be bought at book value and “special bonds” issued in return for the same value, to use as collateral for refinance capital from the central bank.

Vietnam’s banks, burdened with Asia’s highest ratio of non-performing loans, have dramatically tightened lending and created a liquidity trap in a consumer market of nearly 90 million people. The property sector has already slumped. A once-roaring economy seen as Asia’s next rising star is chugging along at its slowest pace in 13 years.

Credit grew 2.1 per cent in the first four months of the year, the government said today, after a 9 per cent pace in 2012, which the World Bank said was “anemic.”

As a result, more than 100,000 local businesses shut down in 2011 and 2012 and a further 13,000 closed in the first quarter of this year, according to the Ministry of Planning and Investment.

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Vietnam’s banks will soon be able to sell their amassed bad debts to a newly established asset management company, the country’s state bank announced on May 16.

Reading Time: 1 minute

dong bundleVietnam’s banks will soon be able to sell their amassed bad debts to a newly established asset management company, the country’s state bank announced on May 16.

Bank with bad-debt ratios of 3 per cent and more will be required to comply and move their loans to the the Vietnam Asset Management Corp (VAMC), according to State Bank of Vietnam Chief Inspector Nguyen Huu Nghia.

The company will, however, have a starting capital of just $24 million.

The State Bank of Vietnam estimates bank non-performing loans at 6 per cent, or $7.8 billion, of total outstanding loans of $130 billion.

According to analysts, the real level of toxic loans could be at least three times that estimate, or more than $23 billion. At best, the capital of the proposed bad-debt bank would be only one-third of one per cent of the outstanding bad loans and probably represents only working capital.

VAMC will initially buy only bad debts taken out for real estate mortgages. Debt would be bought at book value and “special bonds” issued in return for the same value, to use as collateral for refinance capital from the central bank.

Vietnam’s banks, burdened with Asia’s highest ratio of non-performing loans, have dramatically tightened lending and created a liquidity trap in a consumer market of nearly 90 million people. The property sector has already slumped. A once-roaring economy seen as Asia’s next rising star is chugging along at its slowest pace in 13 years.

Credit grew 2.1 per cent in the first four months of the year, the government said today, after a 9 per cent pace in 2012, which the World Bank said was “anemic.”

As a result, more than 100,000 local businesses shut down in 2011 and 2012 and a further 13,000 closed in the first quarter of this year, according to the Ministry of Planning and Investment.

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