VietNamNet Bridge – Policies should be made more liberal for foreign investors to get involved in debt trading, and thus bad debt settlement can be accelerated, said Dr. Le Xuan Nghia, member of the National Advisory Council for Monetary Policy.

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The scheme on establishment of Vietnam Asset Management Company (VAMC) will be put forward at the next meeting of the Government. However, bad debt cannot be solved with domestic resources alone, said Nghia at a workshop on interest rate management and demand for senior finance-banking human resources held by the University of Finance and Marketing.

VAMC, with estimated chartered capital of VND100 trillion, will buy debts from banks via bond issuance, meaning bad debts from banks will be transferred to VAMC.

Banks will have to extract provision worth 20% of the total value of bonds issued by VAMC. After five years, debts will be replaced by provisions, which will directly affect profits of banks.

Regarding the question who will buy collateral from VAMC, Nghia informed foreign investors had a really great demand. They want to buy land in Vietnam, but most of them encounter legal obstacles.

He suggested laws should be revised to allow foreign investors to set up investment funds and finance companies, directly buy and sell assets, and purchase houses in Vietnam.

In the countries hit by the 1997-1998 crisis, 60% of bad debts had been bought by foreign investors and then, their situation got improved.

When bad debts owed by enterprises are cleared, they should be granted new loans. If credit could not flow into the economy, bad debt settlement should be considered as a failure, said Nghia.

In an interview with the Daily, Dr. Vo Tri Thanh, vice president of the Central Institute for Economic Management (CIEM), said VAMC cannot magically wipe out bad debt, but it needs other solutions to jointly cope with this issue.

“VAMC must be associated with the process of handling weak banks and State-owned enterprises (SOEs), aiding the economy to warm up the property market a bit, and managing the money supply to ensure macroeconomic stability. In other words, VAMC must be put in the overall picture; it alone cannot solve the problem,” he said.

VAMC by nature is to handle collateral only, whereas SOEs have a lot of non-collateral loans. Therefore, restructuring of SOEs and several other measures are necessary in order to resolve this problem, he said.

In regard to interest rates, Nghia predicted the ceiling deposit rate would be lowered by another percentage point this year.

For deposit and lending rates to go down more considerably, he deemed it necessary to deal with weak banks. They should either go bankrupt or receive financial support to tackle liquidity constraints.

Source: SGT