Thursday, 15:58 10/10/2013
Legal framework prevents foreign investors from buying Vietnam's bad debts
There are many foreign investors waiting to buy bad debts from the Vietnam Asset Management Company (VAMC) but they are challenged by complicated procedures.
On October 9, former the deputy head of National Financial Supervisory Commission, Le Xuan Nghia, discussed the problem at the conference 'Movements of macro-economy and prospects of Vietnam's bank restructuring process' held by BIDV Bank.
VAMC is expected to heighten transparency of bad debt trading and create more access for foreign investors to enter Vietnam's market. According to Nghia, the establishment of VAMC was delayed because they had many opposing opinions about how to deal with bad debt. "It was a huge undertaking by both the state bank and related parties in order to establish VAMC." he said.
When the plan was proposed, the government was worried that they would be unable to attract foreign investors. But in the month that VAMC was established, the number of foreign investors who wanted to participate in Vietnam's bad debt trading was much higher than expected.
"Even Blackstone Group L.P., an American-based multinational private equity firm, said they hoped to buy products worth over USD1 billion." Nghia said. "Until the end of 2013, VAMC can buy VND50-60 trillion of bad debts if the inflation rate is stable."
Currently, a huge number of banks want to sell their bad debts but VAMC only has 50 employees. After selling their bad loans, these credit institutions may use VAMC-issued bonds to ask banks to lend them money.
This could affect the monetary policies, so VAMC has to work carefully with the state bank. They cannot buy debts too quickly or it might cause inflation. In addition, many foreign investors have raised concerns over Vietnam's complicated procedures.
Simon Andrews, IFC Regional Manager for Vietnam, Laos, Cambodia and Thailand, said investors are challenged by Vietnam's legal environment and one of the biggest challenges is they cannot own land in Vietnam. They cannot buy debts if they do not have rights over the debt collateral.
Economist Phan Thi Thu Ha also said, "If the government were to issue a legal framework for foreign investors to buy bad debts in Vietnam then we may not need VAMC." According to Ha, bad debts are estimated to be around VND256 trillion, accounting for 10% of Vietnam's GDP. Most of bad debt is from real estate projects and losses caused by failing state-owned firms.
VAMC is expected to heighten transparency of bad debt trading and create more access for foreign investors to enter Vietnam's market. According to Nghia, the establishment of VAMC was delayed because they had many opposing opinions about how to deal with bad debt. "It was a huge undertaking by both the state bank and related parties in order to establish VAMC." he said.
When the plan was proposed, the government was worried that they would be unable to attract foreign investors. But in the month that VAMC was established, the number of foreign investors who wanted to participate in Vietnam's bad debt trading was much higher than expected.
"Even Blackstone Group L.P., an American-based multinational private equity firm, said they hoped to buy products worth over USD1 billion." Nghia said. "Until the end of 2013, VAMC can buy VND50-60 trillion of bad debts if the inflation rate is stable."
Currently, a huge number of banks want to sell their bad debts but VAMC only has 50 employees. After selling their bad loans, these credit institutions may use VAMC-issued bonds to ask banks to lend them money.
This could affect the monetary policies, so VAMC has to work carefully with the state bank. They cannot buy debts too quickly or it might cause inflation. In addition, many foreign investors have raised concerns over Vietnam's complicated procedures.
Simon Andrews, IFC Regional Manager for Vietnam, Laos, Cambodia and Thailand, said investors are challenged by Vietnam's legal environment and one of the biggest challenges is they cannot own land in Vietnam. They cannot buy debts if they do not have rights over the debt collateral.
Economist Phan Thi Thu Ha also said, "If the government were to issue a legal framework for foreign investors to buy bad debts in Vietnam then we may not need VAMC." According to Ha, bad debts are estimated to be around VND256 trillion, accounting for 10% of Vietnam's GDP. Most of bad debt is from real estate projects and losses caused by failing state-owned firms.
