Vietnam needs VND30 trillion a year by 2015 to settle bad debts VietNamNet Bridge – Experts believe that the bad debts would not be entirely settled until 2015, and that the national debt trade company would need 30 trillion dong a year to clear the debts. How to settle bad debts has been discussed on all finance forums recently. However, no solution has been chosen so far. The State Bank of Vietnam (SBV) believes that it is necessary to set up an AMC (asset management company) with the total chartered capital of 100 trillion dong, which would be in charge of trading bank bad debts. The AMC model has been existing in many countries in the world as a subsidiary or a part of a commercial bank. Meanwhile, the Ministry of Finance (MOF) wants to upgrade the operational DATC (Debt and Asset Trade Corporation) now put under its management, into a more powerful corporation to be in charge of settling bad debts. Economists do not think that settling bad debts is a task of the State. They believe that commercial banks have to deal with the bad debts themselves before they ask for the intervention of the State. A company given the function and power of trading bad debts would be very useful, while the bad debt settlement process should be put under the supervision by the central bank. Regarding the structure of AMC, experts think that Vietnam should follow the model being applied in South Korea, Thailand and Indonesia, where AMC is put under the management by the government. The capital would be funneled to AMC through three major channels. First, the government directly finances AMC via the State budget, or government bond issuance. There’s a general principle that the state’s capital should not be used too much for the bad debt settlement. The governments only provide certain amounts of capital to AMCs, while the corporations would have to seek capital from other sources to maintain their operation. Second, AMC can issue corporate bonds to raise funds or borrow money from other institutions. AMC bonds would be issued directly to commercial banks with the guarantee from the government. Third, the financing to AMC would be carried out by the central banks. However, this is not the solution chosen by many countries, because this may help the fulfillments of the tasks assigned to central banks. Nevertheless, analysts do not think that establishing an AMC with the chartered capital of 100 trillion dong at this moment--in the context of the economic downturn, is a good and feasible idea. MOF believes that it would be better to upgrade the existing DATC to make it more powerful, instead of setting up a new legal entity, because the solution would allow saving money. Local newspapers have quoted their sources as saying that DATC has been hurrying to compile the plan to upgrade their capability to turn into a powerful institution to specialize in dealing with debts, or in restructuring economic groups and general corporations. An official of MOF said DATC wants higher chartered capital and some more special rights needed to allow it to speed up the process of settling bad debts and help commercial banks improve their liquidity. DATC thinks that it would be necessary to pump capital to support some big scale credit institutions which have high bad debt ratios--after the debt restructuring process, via the purchase of shares at preferential prices. Of course, the institutions would have to bear the strict supervision by the State Bank and follow strict regulation in their operation. The capital pumping would help avoid the possible collapse of the banks which may harm the whole banking system, while it would put a pressure on banks, forcing them to restructure themselves. Compiled by C. V