Bad debt settlement: do it yourself Even though the State Bank has released the two important legal documents which guide the bad debt purchases, analysts still don’t think the Vietnam Asset Management Company (VAMC) would be useful for the debt settlement.   VAMC, as a debt trader, needs to offer “good commodities” to attract buyers, which means that the bad debts it offers to sell need to be attractive. However, analysts have commented that VAMC has fallen into dilemma as it can either break even or make profit with the bad debts as requested by the State Bank. Under the current regulations, VAMC has to submit the debt settlement plans to the State Bank when dealing with every debt. In special cases, the Prime Minister will decide what to do with the bad debts which cannot meet the requirements to be sold to VAMC. What way out for the debts tangled as bamboo shavings? The two long awaiting legal documents relating to the debt settlement were finally released by the State Bank on September 6. One of the two, the Circular No. 19, comprises of 54 articles, including new concepts, has been described as “too complicated”, which will take experts much time to “read and understand.” In general, the enterprises and credit institutions which have bad debts to be sold still have not found a way out to the debts they have taken on. The State Bank allows VAMC, after buying the debts of an enterprise from a bank, to restructure the debts, lower the lending interest rates, exempt from the penalty rates… VAMC even can provide the financial support to the enterprise so as to help it overcome difficulties. However, a question has been raised that if VAMC is financially capable enough to “give a kiss of life to the enterprise” which is on the verge of bankruptcy. Analysts have commented that it’d be better to take actions to settle the debts definitively rather than “opening a new, but narrow way” for the enterprise. The credit institutions, after selling bad debts to VAMC, would get “special bonds” instead of money, which they can mortgage for refinancing from the State Bank. This would allow the banks to “put aside” the bad debts to improve the business performance, and have more capital for business. However, even when the bad debts are transferred to VAMC, they would pursue the banks persistently. Under the Circular No. 20, banks have to make provisions against risks annually (20 percent of the bond face value at minimum). This is the method of “shifting debts into capital”, applied to both banks and the banks’ borrowers. In general, the State Bank’s principle is that commercial banks must take responsibility for the debts, while the involvement of VAMC only can give banks some more time to deal with the debts. This might be one of the reasons that make commercial banks hesitate to sell bad debts to VAMC. Analysts have noted that in fact, the State Bank always pays a special attention to the non-performing loans settlement by requesting commercial banks to make provisions against risks. It was the provisioning which has helped reduce the non-performing loan ratio to 4.67 percent by the end of April 2013, to 4.65 percent by the end of May and 4.46 percent by June 2013. Thanh Mai, VietNamNet Bridge