Vietnam targets bank debt of $474m

Vietnam's state asset management company, tasked with cleaning up bad loans, said it will acquire as much as 10 trillion dong (US$474 million - 14.7 billion baht) of spoiled debt over the next two months as it considers possible foreign funding.

Vietnam Asset Management Co (VAMC) will issue special bonds to about 10 banks, chief executive officer Nguyen Huu Thuy said in an interview in Hanoi on Tuesday. The lenders will be able to use the bonds to secure funding from the central bank, he said.

"We can start buying the first batch of bad debt in the next two weeks," Mr Thuy said. "This will send a positive signal to the market and investors, so they can see how quickly we can move forward and how determined we are in resolving bad debt."

Vietnamese Prime Minister Nguyen Tan Dung is seeking to overhaul almost $5 billion in bad debt at banks that has crimped lending, and revive an economy that last year grew at the slowest pace since at least 2005. Vietnam is emulating a model tested by neighbours from Malaysia to China in forming an entity to acquire loans from banks, as it seeks to rejuvenate investor confidence.

"This is a brand new development and it's long overdue," Alan Pham, chief economist at VinaCapital Group in Ho Chi Minh City, said in a telephone interview. "Any concrete action or step by the VAMC will be welcomed by the market."

The purchase of debt is a new step on this long road to resolving bad debt.

The asset company will prioritise buying debt from banks that have the highest non-performing loan levels and will require these to be backed by property and other assets, Mr Thuy said. Asked whether these are real-estate loans, state-owned company debt or other borrowings, he said "there is a variety". The majority of Vietnam's bad debt is in local currency, he said.

The central bank estimates bad debt at 7.8% of outstanding loans at the end of last year. About 35% of property loans were non-performing as of the end of 2012, according to the National Financial Supervisory Commission. The country's outstanding property loans stood at 230 trillion dong as of March 31, according to the central bank.

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