Can the VAMC single-handedly halt Vietnam's bad loan woes?

It has already bought $9.4b in NPLs from various banks.

Although the establishment of the Vietnam Asset Management Company (VAMC) in 2013 was able to dent Vietnam’s growing bad debt, it might not be sufficient to address the problem holistically amidst structural and legal roadblocks hounding the cleanup, according to a study from accounting firm Deloitte. 

VAMC buys NPLs in exchange for a special class of bonds, provisioned at 20% per annum and can be used as collateral to secure capital from the State Bank of Vietnam (SBV).

Since its inception, VAMC has acquired $9.4b of NPLs from various banks; in order to speed up the process the VAMC is planning to begin purchasing additional NPLs, providing banks with fresh capital to extend new loans.

However, it might not be enough to fully halt the growth of bad loans in the country whose NPL ratio stands at 2.6% as of mid-2018.

Also read: Can Vietnam halt the exponential growth of its bad debt? 

“With the establishment of the VAMC the government has managed to delay the negative effect of NPLs, but the issue still remains,” Deloitte noted, since the organisation acts more as a warehousing vehicle than as a proactive clean-up agency.

Deloitte notes that resolving the large amount of bad loans approximately worth $6b will continue to be the main challenge facing Vietnamese banks in the coming years.

“However, should the reforms push through, this could be another promising market for international investors given the NPL volumes both at bank and VAMC levels.”