Banks still bear risks even after selling debts to VAMC International institutions are remaining doubtful about the ability of the Vietnam Asset Management Company (VAMC) to settle bad debts.   Moody’s, in its latest report, warned that although the bad debts have been taken off the banks’ balance sheets and the institutions now have more capital with which to improve their liquidity, the risks have not evaporated. Gene Fang, Vice President of Moody’s Investors Service, a senior analyst, said the existence of VAMC, a government’s company in charge of buying bad debts from banks, can certainly help improve banks’ liquidity. VAMC picks bad debts off the banks’ balance sheets and offers special bonds which banks can use as collateral for loans from the State Bank.  However, commercial banks still have to incur the risks relating to their low-quality assets. In principle, after selling bad debts to VAMC and receiving special bonds from it, banks must continue to make 100 percent provisions against the bad debts for five years. This, according to Moody’s, would cause the value of the assets transferred to VAMC to be written down, while banks would continue to face financial risks. Only if VAMC can sell the bad debts to third parties would the recovered value be retained by banks. In principle, banks can mortgage the special bonds in exchange for refinancing from the State Bank. The values of the loans are no more than 70 percent of the bonds’ values, while the loans’ interest rates are 2 percent lower than the market interest rates. However, no commercial bank has received such refinancing so far, for two reasons. First, a detailed refinancing mechanism has not yet been set up. Second, banks do not have the demand for loans, while their own capital has been left idle. At a press conference in early April, experts from the Asian Development Bank (ADB) expressed their concerns about VAMC’s ability to handle bad debts. The biggest challenge VAMC is facing is limited financial capability. Meanwhile, it has set up too ambitious a plan for 2014: buying $4.8 billion worth of bad debts from banks. ADB’s Dominic Mellor commented that VAMC is in the difficult position of having to take on a gargantuan task with modest initial capital of VND500 billion, or $24 million. Doi Song & Phap Luat newspaper reported that the World Bank (WB) in early April also expressed its concerns about VAMC’s ability to settle bad debts. Victoria Kwakwa, the Vietnam Country Director of WB, said WB has not received any detailed information from VAMC on the process of dealing with bad debt. What WB has learned is that VAMC has bought a part of the bad debts. Meanwhile, it is unclear how the purchased bad debts have been settled. Dau Tu newspaper on April 9 quoted its sources as saying that VAMC has only settled VND300 billion out of the VND40 trillion worth of bad debt it has bought so far. Some bank managers have expressed their worry about the “fate” of the debts transferred. “We have heard from VAMC that the sale of debt has fallen into deadlock,” a senior executive of a big bank said. “I am worried that the bad debt settlement will not be completed after five years”. K. Chi, VietNamNet Bridge