VAMC special bond terms to be extended
Terms for special bonds issued by the Vietnam Asset Management Company (VAMC) to buy non-performing loans (NPLs) from credit institutions will be extended to ten years in some cases, according to a State Bank of Vietnam newly-issued regulation.
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VAMC will report the qualified institutions to the central bank and the extension will be made after receiving approval from the central bank.
Currently, the expiry date of the bonds is five years.
According to the circular, VAMC will also be allowed to set sale prices for NPLs that it bought from credit institutions.
Besides the special bonds, VAMC this year will use cash to buy NPLs for the first time, which has been hailed by Moody’s Investors Service.
“This is credit positive for Vietnamese banks because a cash sale would effectively transfer all economic risks associated with a NPL to the VAMC and away from the banks,” the US rating agency said in a report on June 20.
According to Moody’s, the current VAMC bond exchange for NPLs is a mechanism that does not fully clean up bank balance sheets.
Current regulations enable VAMC bond holders to borrow refinancing loans from the central bank, with a value not exceeding 70 % of the price of the special bonds. However, the lenders are required to establish yearly provisional funds amounting to 20 % of the value of the bonds they have bought from VAMC.
A cash purchase scheme would directly reduce NPLs and add cash to the banks, while improving the loss absorption capacity, Moody’s said, and added that bank profitability would also increase because cash from the sale could be channelled to new and performing loans.
Moody’s noted that the extent of the positive effect from the cash purchase scheme depends on VAMC’s capacity to buy NPLs from banks.
According to Moody’s, the VAMC’s current capacity to purchase NPLs by cash is VND2 trillion (US$89.28 million), which is the size of its capital base. Meanwhile, reported NPLs of Moody’s-rated banks are VND30 trillion.
Moody’s said that banks with the largest %age of special mention loans could benefit from VAMC’s cash purchase of NPLs, since these are loans that are most likely to become non-performing.
Among the rated banks, Vietnam Prosperity JS Commercial Bank (VPBank) and Bank for Investment and Development of Vietnam (BIDV) would benefit most. As of December 2015, special mention loans made up 5.8 % of VPBank’s adjusted loans and 2.8 % of BIDV’s adjusted loans, according to Moody’s.
