Vietnam to Force Bank Bad-Debt Sales to State Asset Company

Vietnam to Force Bank Bad-Debt Sales to State Asset Company

Vietnam will force banks to sell bad debt to a soon-to-be established asset management company, according to State Bank of Vietnam Chief Inspector Nguyen Huu Nghia, as the government steps up efforts to revive the economy.

Lenders assessed by the central bank to have bad-debt ratios of 3 percent and above will be required to comply, Nghia said today, citing a final proposal that is awaiting the prime minister’s review and approval. The government plans to set up the company this month, according to Cao Sy Kiem, member of the National Financial and Monetary Policy Advisory Council.“We will use our figures on the bad debt of each commercial bank, not the reported numbers from the banks,” Nghia told Bloomberg News in Hanoi.

Prime Minister Nguyen Tan Dung’s administration has missed an earlier target for the asset management company that will tackle non-performing loans estimated by credit ratings companies and market participants at as much as 20 percent, according to JPMorgan Chase and Co. The economy last year expanded at its slowest pace since 1999, as elevated levels of bad debt crimped consumption and stifled business expansion.

The asset management company “is not a magic bullet, but it’s part of an array of weapons the government and SBV can use to try to address the bad debt problem,” said Tareq Muhmood, the Ho Chi Minh City-based chief executive for Australia & New Zealand Banking Group Ltd. The firm “should give the banks breathing space, to give them time to build up profits over the next few years and use that to start writing off bad debt.”

Stocks Surge

The Ho Chi Minh City Stock Exchange’s VN Index (VNINDEX) gained 0.9 percent today, the highest close since April 12. Joint-Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, surged 5.4 percent to its highest since April 11, while Asia Commercial Bank rose 2.5 percent.

The bad-debt ratio at Vietnamese banks dropped to 6 percent of total outstanding loans as of Feb. 28, from “about 8 percent” last year, Vu Duc Dam, chairman of the Government Office, has said. Credit grew 2.1 percent in the first four months of the year, the government said today, after a 9 percent pace in 2012, which the World Bank said was “anemic.”

The central bank cut interest rates this month, the eighth reduction since the start of 2012 as it tried to spur lending. Vietnam Bank for Agriculture & Rural Development, or Agribank, the country’s largest lender by assets, had a bad-debt ratio of 6.1 percent as of the end of June 2012, State Bank of Vietnam Governor Nguyen Van Binh said last August.

Saigon-Hanoi Commercial Joint-Stock Bank, the seventh-largest listed lender, had a ratio of 8.8 percent as of the end of 2012, according to a statement on its website. The monetary authority has not revealed bad-debt levels at lenders this year.

Refinancing Funds

The asset company will have an initial registered capital of 500 billion dong ($24 million) and issue zero-coupon bonds in exchange for banks’ bad debt, Nghia said. The bonds will have a maturity of five years and banks can use them as collateral to get refinancing funds from the central bank, said Kiem.

The asset company will use the book value of the bad loans, excluding loss provisions, as a method of valuing the bonds to be issued to the lenders, according to Kiem, a former central bank governor. The banks will then be required to set aside 20 percent of the bonds’ value every year until the bonds mature.

“The debt asset management company will help clean up the balance sheets of commercial banks,” said Tran Thi Kim Cuong, head of equities at Manulife Asset Management’s Vietnam unit in Ho Chi Minh City. “It will help banks to increase funds for their business so that they can make up for losses caused by non-performing loans.”

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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