Developing debt trading market: Moving from "debt collection" to "debt consumption"

VCN- Instead of just selling bad debt to Vietnam Asset Management Company (VAMC) and almost to keep in store, experts say that Vietnam needs to develop a buying market of debt settlement with the participation of both sellers and buyers. This is considered to be an effective way to strengthen the financial situation of credit institutions, and to create a new investment channel for investors, contributing to the development of financial markets in Vietnam.  
developing debt trading market moving from debt collection to debt consumption
The supply for the debt trading market in Vietnam is plentiful while demand is limited due to policy constraints.

Supply is high, demand is limited

Speaking at the seminar "Developing Debt Sale and Debt Market in Vietnam" held recently at the University of Economics in Ho Chi Minh City, Dr. Nguyen Manh Hung, Head of Supervisory Board of VAMC, said that bad debt management through VAMC was the most effective way in the past five years (2012-2016) with VND 253,015 billion bad debts bought from credit institutions. These accounts accounted for over 41% of total NPLs recovered during this period. However, as of 31st December, 2016, VAMC only recovered VND 50,169 billion, accounting for less than 20% of total debt. The method of collecting debts by VAMC mainly coordinate with credit institutions to sell assets to secure loans, sell debt, urge customers to pay debts, etc.

So, according to Mr Hung, VAMC is now regarded as a "bad debt" of credit institutions. In essence, this amount of bad debt is bad debt to credit institutions. Annually, credit institutions still have to deduct 20% of the risk reserve and return it to the credit institution within 5 years if they fail to sell their debts. Including the bad debt sold to VAMC, it has not been recovered and the debt has not been grouped into bad debt, but nature is bad debt, and banking sector bad debt to the end of 2016 is still over 8%. Thus, despite the best efforts, the level of bad debt treatment has not been as expected, bad debt ratio is still high.

Also in the period 2012-2016, credit institutions disposed of VND 154,392 billion of bad debt from provision. This is the second most effective bad debt channel after VAMC. However, the provision level of credit institutions is equal to over 33% of charter capital of the same banking sector. Many banks have "eaten" their own funds because they do not generate enough profit to make up. Together with the burden of provisioning to deal with bad debts, banks are also under great pressure to set aside 20% per annum for bad debt sold to VAMC, but the collateral cannot be resolved to recover the debt.

According to Mr. Hung, banks have not only reduced their expenses to increase their income but also have to adjust their business strategies to reduce the interest rate. The mobilization rate, raising the lending interest rate to increase the income. This also means that businesses find it difficult to receive capital to expand production, resulting in limited budget revenues and the competitiveness of enterprises in particular, as well as the economy in general is reduced.

According to experts, the cause of the situation is that Vietnam has no market for bad debt trading in accordance with market principles. VAMC buys debt from credit institutions, but there is no market for this company to sell debt to other organizations. The debts that VAMC purchased from credit institutions are mainly purchased at book value (principal balance), the purchase at market price was implemented by VAMC in 2016 but without results. On the other hand, there are not many participants in the debt market. While there are hundreds or even thousands of debtors, such as credit institutions and branches, the debt purchaser has only three entities, namely VAMC, Vietnam Debt Trading Company Limited (DATC), Ministry of Finance, and asset management and sale (AMC) companies of credit institutions. Thus, the supply is high, demand is limited, so the handling of bad debt is slow.

Open the market

From the above reality, Dr. Can Van Luc, BIDV's chief economist, estimated that supply for debt trading in Vietnam was plentiful, including loans of credit institutions with over VND 6.5 trillion, equivalent to 125% GDP, of which, elimination of personal and household debt is about VND 4 million billion. Along with the bad debt and potential bad debt, estimated at the end of 2016 is about 8.6% total outstanding loans, and equivalent to VND 516,000 billion. There are also loans between enterprises. In addition, debt sold to VAMC and untreated as of September 2017 is about VND 230,000 billion. However, at present, Vietnam has no common standard on debt trading.

According to Mr. Luc, at present, some foreign and domestic investors are very interested and want to buy debt at VAMC as well as some credit institutions. However, the underdevelopment of financial intermediaries has made these investors difficult to access the market. Specifically, Vietnam has a lack of credit rating agencies, and only the rating criteria VNR 500 companies are published, no unit has been given credit rating for debts.

Meanwhile, one of the successful characteristics of the Korean market is the diverse involvement of credit rating agencies. Vietnam also lacks professional brokers who hold all the market information, focal arrangements for buyers and sellers to meet. Thanks to this team, trading debt is done professionally, legally, as well as protecting the interests of investors. The debt trading market in Vietnam is lacking these brokers. Other financial institutions such as insurance companies, investment funds, pension funds, securities companies etc., have not yet been formed.

Accordingly, experts said that Vietnam needs to improve the legal framework to build and develop the debt trading market, and attract investment capital into the market. At the same time, it is necessary to internationalize accounting standards as a basis for valuation, M&A in the market, creating a corridor for efficient debt trading markets. Experts also questioned whether Vietnam needed to develop a unified, transparent, and complete national database on sectors and businesses that had been standardized to join the market. This will create a convenient basis for any investor who intends to enter the market, as well as save costs, time, and increase efficiency in making investment decisions.

By Khai Ky/Huu Tuc

Related News

An Giang Customs announces businesses with tax arrears

An Giang Customs announces businesses with tax arrears

VCN - An Giang Customs Department has just announced 25 businesses with tax arrears worth over VND6.2 billion.
Another six months for debt restructuring but need to manage bad debt risks

Another six months for debt restructuring but need to manage bad debt risks

VCN - The decision to continue extending the debt restructuring period, keeping the debt group unchanged for another six months, is expected to continue to contribute to solving difficulties for businesses, reduce debt repayment pressure, and add resources for production and business recovery.
The Government plans to borrow maximum of VND676,057 billion and repay debt of VND453,990 billion in 2024

The Government plans to borrow maximum of VND676,057 billion and repay debt of VND453,990 billion in 2024

VCN – The Loan and Public debt payment plan in 2024 and the 3-year public debt management program for 2024 - 2026 have been approved by Deputy Prime Minister Le Minh Khai in Decision No. 260/QD-TTg.
Finance sector proactive and pioneering in fiscal policies management for economic growth

Finance sector proactive and pioneering in fiscal policies management for economic growth

VCN - In the first half of 2023, the Finance sector has strived to make an important contribution to socio-economic development. The ministry's proactive, flexible, timely promulgation and implementation of fiscal policies have supported the economy, removed difficulties for businesses and people, and contributed to growth.

Latest News

Big 4 banks estimate positive business results in 2024

Big 4 banks estimate positive business results in 2024

One of the country’s biggest banks expects results to be the best for four years.
Flexible and proactive when exchange rates still fluctuate in 2025

Flexible and proactive when exchange rates still fluctuate in 2025

VCN - In the last days of 2024, as many forecasts, the US Federal Reserve (Fed) continued to cut interest rates, pushing the USD index up, creating pressure on domestic exchange rates. Therefore, domestic exchange rate management policies need to continue to be flexible and appropriate, thereby supporting businesses in import and export.
Issuing government bonds has met the budget capital at reasonable costs

Issuing government bonds has met the budget capital at reasonable costs

VCN - According to the State Treasury's report, capital mobilization through the issuance of government bonds has ensured mobilization to meet the capital needs of the state budget at reasonable costs.
Bank stocks drive market gains as VN-Index closes final Friday of 2024 on a positive note

Bank stocks drive market gains as VN-Index closes final Friday of 2024 on a positive note

Việt Nam’s stock market ended the final Friday of 2024 on a positive note, with banking stocks leading the rally and VN-Index successfully surpassing the 1,275-point mark.

More News

Banks still "struggling" to find tools for handling bad debt

Banks still "struggling" to find tools for handling bad debt

VCN - According to financial experts, the rising trend in bad debt continues to pose significant challenges to debt resolution and recovery efforts at credit institutions (CIs).
Forecast upbeat for banking industry in 2025

Forecast upbeat for banking industry in 2025

In a recent report, ACB Securities Companies analysts said that the net interest margin (NIM) of banks in 2025 will increase by five basis points over 2024.
Ensuring financial capacity of bonds issuers

Ensuring financial capacity of bonds issuers

VCN - The Ministry of Finance is finalizing the draft Decree amending and supplementing Decree No. 155/2020/ND-CP detailing the implementation of a number of articles of the Securities Law. The amendment aims to continue to perfect the legal framework and overcome some shortcomings arising in the practice of the securities market.
Finance ministry announces five credit rating enterprises

Finance ministry announces five credit rating enterprises

One more company has been granted the certificate of eligibility since August.
The capital market will see positive change

The capital market will see positive change

VCN – Vietnam’s capital market has more balanced, harmonious and sustainable. However, besides the achievements, the market still faces many potential challenges. In order for the capital market to become an effective and sustainable capital mobilization channel, further improving the quality of goods and diversifying investors in the market is a key direction.
Corporate bond issuance value rises by 60 per cent

Corporate bond issuance value rises by 60 per cent

In the first 11 months of 2024, the total value of corporate bond issuances reached nearly VNĐ403 trillion, a 60 per cent increase year-on-year.
Slower mobilization than credit may put pressure on interest rates

Slower mobilization than credit may put pressure on interest rates

VCN - According to the latest data from the State Bank of Vietnam (SBV), deposits in the banking system as of the end of September 2024 reached more than 14 million billion VND, an increase of 4.9% compared to the beginning of the year, but the rate was still slower than credit, which could put pressure on interest rates.
Fed’s foreseen rate cuts affect foreign exchange rate

Fed’s foreseen rate cuts affect foreign exchange rate

After the Fed’s move, the US dollar index (DXY) on December 19 hit nearly 108, the highest level in the past year.
Untying the knot for green finance

Untying the knot for green finance

VCN - Green finance is a crucial resource for greening businesses. Completing the policy framework for green finance is urgently needed to unlock this capital flow.
Read More

Your care

Latest Most read
Big 4 banks estimate positive business results in 2024

Big 4 banks estimate positive business results in 2024

One of the country’s biggest banks expects results to be the best for four years.
Flexible and proactive when exchange rates still fluctuate in 2025

Flexible and proactive when exchange rates still fluctuate in 2025

In the last days of 2024, as many forecasts, the US Federal Reserve (Fed) continued to cut interest rates, pushing the USD index up, creating pressure on domestic exchange rates.
Issuing government bonds has met the budget capital at reasonable costs

Issuing government bonds has met the budget capital at reasonable costs

VCN - In summary of 2024, the State Treasury report said that in the context of many fluctuations in the global economic situation, the disbursement rate of domestic public investment capital is still slow, and the state budget balance is high, the State
Bank stocks drive market gains as VN-Index closes final Friday of 2024 on a positive note

Bank stocks drive market gains as VN-Index closes final Friday of 2024 on a positive note

Việt Nam’s stock market ended the final Friday of 2024 on a positive note, with banking stocks leading the rally and VN-Index successfully surpassing the 1,275-point mark.
Banks still "struggling" to find tools for handling bad debt

Banks still "struggling" to find tools for handling bad debt

VCN - According to financial experts, the rising trend in bad debt continues to pose significant challenges to debt resolution and recovery efforts at credit institutions (CIs).
Mobile Version