VietNamNet Bridge – While the State Bank of Vietnam (SBV) says that settling bad debts through the Vietnam Asset Management Company (VAMC) is the optimal solution, economists doubt that it is actually helping the situation.

VAMC, a state-owned corporation, was established to help commercial banks settle their mountain of bad debts. It has so far reportedly “cleared” VND123 trillion worth of bad debts from commercial banks’ books.

Doan Van Thanh, deputy general director of VAMC, said the amount of debt VAMC buys from banks in 2014 was double that of the previous year (VND40 trillion).

However, of the VND123 trillion worth of debts bought, VAMC settled onliy VND4 trillion, which means that the remaining debts are still in VAMC’s coffers.

Deputy Governor of the State Bank of Vietnam, Nguyen Thi Hong, has once again said at a meeting with the local press that VAMC is the best solution for Vietnam to settle bad debts without the state’s money.

However, economists doubt that VAMC can help settle bad debts, fearing that VAMC will only make the debt situation worse.

Dr. Nguyen Tri Hieu, a renowned banker, said the only thing VAMC can do is to write off debts from banks’ balance sheets, while it cannot settle the problem to its root cause. This means that the bad debts have been taken away from bank balance sheets and put on VAMC’s balance sheet.

In other words, VAMC is just a coffer for banks to keep their debts. This explains why VAMC now takes on huge debts it has bought from banks and does not know what to do with the debts.

Hieu pointed out that the State Bank’s recent suggestion of settling banks’ bad debts with the state’s money shows that the central bank has failed to settle bad debts with VAMC.

Dr. Do Thien Anh Tuan, a lecturer at the Fulbright Economics Teaching Program (FETP), also believes that VAMC cannot help settle the existing problem of the banking system.

He noted that the banks’ bad debts can only be “hidden” because they are not shown on books, but in fact, they have not disappeared.

“There are too many problems in the VAMC model which cannot help settle bad debts effectively,” Tuan said.

One of the problems Tuan mentioned is that VAMC does not have real money to buy bad debts.

When buying debts, it pays in special bonds, not cash. VAMC’s chartered capital is VND500 billion, too small compared with the bad debt value, estimated at hundreds of trillions of dong.

He noted that VAMC’s chartered capital is even lower than the capital of some banks’ AMCs (asset management companies).

Prime Minister Nguyen Tan Dung said at a dialogue with the business community in early December that reducing the banks’ bad debt ratio to 3 percent was within reach in 2015.

Dat Viet