VietNamNet Bridge – The commercial banks which have the bad debt ratios higher than 3 percent of their outstanding loans will have to sell bad debts to the Vietnam Asset Management Company (VAMC).

The Ban Viet Securities Company has cited a report of the State Bank of Vietnam as showing that only 30 out of the 124 operational commercial banks reportedly have the bad debt ratios higher than 3 percent.

Of the listed banks, except Vietcombank, which reportedly the bad debt ratio at 3.2 percent at the end of the first quarter of 2013, other banks, including ACB, Military Bank, Eximbank, Vietinbank and Sacombank all reported their bad debt ratios below the safely line of 3 percent.

Some analysts believe that with the current regulations, credit institutions would “fabricate figures” to force their bad debt ratios to below 3 percent in order not to have to sell debts to the State Bank.

Nguyen Tri Hieu, a banking expert, said on Thoi bao Kinh te Vietnam that banks would rather conceal their bad debts, rather than selling debts to VAMC and let people know that they have big bad debt ratios, which also means that the banks have been operating ineffectively.

However, the same newspaper has quoted an official of the State Bank of Vietnam as saying that banks can get benefits from selling bad debts to the State Bank to get special bonds; therefore, they would not be reluctant to make transactions with the State Bank.

Also according to the official, 9 commercial banks which have to undergo the restructuring process, really want to sell bad debts to the State Bank.

The official thinks that there might be some commercial banks which try to hide their bad debts, but he believes the number of such banks is very modest. If banks are found as deliberately hiding bad debts, the State Bank would handle with them with strict punishments as it is allowed by the government’s decree 53. This aims to ensure the transparency of the banking system’s operation and the safety of the whole system.

With the current debt trading mechanism, banks would rather push their bad debt ratios to over 3 percent to be able to sell the debts to “clear the debts away” from their balance sheets. Banks would not get any benefits if they take on the bad debts.

VAMC’s General Director Nguyen Huu Thuy, in an interview given to Dau Tu newspaper, also said he believes VAMC would not have to force credit institutions to sell debts, but the institutions would sell debts because they think they need to do that.

“The sale of debts would help banks have free hands to continue their operations,” Thuy said.

“At the meetings between the State Bank and commercial banks to discuss the Decree No. 53, banks all showed their agreement to sell bad debts to VAMC,” Thuy said.

There are two methods VAMC would follow when buying debts. It would either buy debts in accordance with the book value, or buy in accordance with the market value. The former method would be used when VAMC deals with the debts from now to the end of the year.

Tien Phong newspaper has quoted Fitch, a credit rating agency, as saying that Vietnamese banks would still have to face the capital risks after transferring bad debts to VAMC.

Compiled by C. V