After more than a decade of activity, how do you assess the role of Vietnam Asset Management Company (VAMC) in processing non-performing loans and its contribution to “cleaning up” the balance sheets of credit institutions?
The VAMC was established in the midst of a global economic downturn that posed numerous difficulties to production and business operations in general and in Vietnam in particular. The banking system struggled with increasing pressure from non-performing loans, with the non-performing loan ratio exceeding the internationally accepted threshold and threatening system stability. In order to ensure the safety of credit institutions and help companies overcome their difficulties, the government issued Decree 53/2013/ND-CP on the establishment, organization and operation of the Vietnam Asset Management Company (VAMC) and assigned the State Bank of Vietnam (SBV) to set it up. The VAMC was tasked with managing non-performing loans of credit institutions to ensure system stability, promote credit growth and help companies overcome their difficulties. In its more than ten years of existence, the VAMC has clearly demonstrated its role in cleaning up the balance sheets of credit institutions, while at the same time helping companies with non-performing loans but with potential for recovery through additional loans to gradually repay old debts, as well as new loans.
| Dr. Nguyen Quoc Hung, vice president and general secretary of the Vietnam Banking Association, confirmed that the VAMC has played a crucial role in dealing with loan defaults and “cleaning up” the balance sheets of credit institutions. |
In its early years, the VAMC focused on a mechanism to purchase non-performing loans using special five-year provision bonds. These bonds could also be used for refinancing with the Vietnamese state bank. This is considered an effective measure to prevent liquidity risks for credit institutions and to provide them with additional resources for lending to companies to cope with the consequences of the global recession. Specifically, the VAMC helps to reduce the ratio of non-performing loans on the balance sheets of credit institutions to below 3% and thus comply with international standards. This not only helps credit institutions maintain their credit ratings at home and abroad, but also ensures the security of the entire system. In fact, after the first five years of implementation, around 90% of credit institutions had repaid their special bonds, restructured and settled their non-performing loans.
Despite the successes achieved, VAMC faces objective limitations in its operations: with an initial registered capital of only VND 500 billion, later increased to VND 5 trillion, this financial resource is still very limited to be able to buy and sell aggressively at market prices, given the hundreds of thousands of billions of VND in non-performing loans in the credit institution system. In addition, due to the limited workforce in relation to the volume of non-performing loans to be processed, VAMC leaves the monitoring and receivables management after the purchase of non-performing loans with special bonds almost entirely to the credit institutions themselves, instead of participating directly in the restructuring process. As a result, VAMC was unable to clearly demonstrate its leading role in the market for servicing non-performing loans.
Overall, the VAMC has performed its duties well, particularly given the significant increase in non-performing loans across the system following the COVID-19 pandemic. The role of the VAMC is extremely important and irreplaceable. Its task is not only limited to processing non-performing loans, but it also acts as a basis of trust and support system that enables credit institutions to operate in a stable and transparent manner. In addition, the VAMC supports credit institutions in expanding their lending to promote economic growth.
There is currently considerable confusion regarding the roles of VAMC and DATC. Could you please explain the differences in functions, responsibilities, working mechanisms and the types of debt settlement handled by these two institutions?
It can be said that both DATC and VAMC are special instruments of the government, tasked with dealing with non-performing loans, restructuring credit institutions and enterprises in general and state-owned enterprises in particular, to overcome difficulties and promote privatization. Although both entities operate in the area of debt settlement, in reality VAMC and DATC have different tasks, working methods and target groups.
The VAMC (under the State Bank of Vietnam) was established with the aim of rehabilitating non-performing loans, cleaning up the balance sheets of credit institutions, ensuring system stability and maintaining the supply of credit to the economy. The DATC (under the Ministry of Finance) was established earlier, but its main task is to promote the restructuring and privatization of state-owned companies. The DATC acts as a financial enabler to support suitable companies in successful privatization.
Another difference lies in the target group and the area of activity. Currently, VAMC’s customers are exclusively Vietnamese credit institutions. VAMC acquires non-performing loans (NPLs) from the balance sheets of credit institutions using special bonds. The acquired NPLs are kept off-balance sheet by the credit institutions and set aside for a period of five years. This helps credit institutions to reduce their NPL ratio to a safe level and, if necessary, to secure their liquidity through a refinancing mechanism using special bonds. In contrast, DATC’s main customers are state-owned companies struggling with financial difficulties and debts (including bonds) to creditors in general and credit institutions in particular, which creates bottlenecks in the privatization process. DATC acquires this debt (usually at a deep discount of around 30-40% of book value) to improve companies’ financial condition, accelerate the privatization process and help them overcome difficulties.
The most significant difference lies in how debt is treated after the purchase. Specifically: VAMC can acquire non-performing loans from credit institutions and settle them with special bonds or at market price. For companies with non-performing loans but which have potential for recovery, credit institutions may consider debt restructuring and allow them to continue borrowing to maintain production and business operations. In the case of purchase at market price, VAMC has full decision-making power over debt restructuring, debt-to-equity conversion, etc. DATC, on the other hand, after acquiring the debt (including bonds), can directly participate in the restructuring process of the company by converting debt into equity, becoming a shareholder and directly participating in the management to achieve the goal of successful privatization.
In summary, both VAMC and DATC are involved in the processing of non-performing loans, but they have different goals: while VAMC acts as a shield for the financial stability of the banking system, DATC serves as a lever to remove obstacles in the process of privatizing state-owned enterprises. Both institutions support the economy in different, specialized ways, but aim to support the restructuring of credit institutions, enterprises in general and state-owned enterprises in particular, in order to ensure the security of the credit system, accelerate the restructuring and privatization of enterprises and promote economic growth.
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| The role of VAMC is not just to process non-performing loans; it also serves as a pillar of trust and the basis for the stable and transparent operation of the credit institution system. |
In your opinion, should the VAMC operate for profit or focus solely on dealing with non-performing loans and stabilizing the banking and financial system?
I believe that any company subject to the Companies Act or the Credit Institutions Act must prioritize efficient operations. However, VAMC is a special company and the government has clearly defined VAMC as a non-profit entity in Decree 53/2013/ND-CP. This means that VAMC’s top priority is not to optimize cash flow for the budget, but to quickly eliminate the problem of non-performing loans to ensure the safety of the financial system. If the focus were solely on maximizing profits, VAMC could easily fall into a posture of “hoarding” assets and waiting for higher prices before selling. This would inadvertently slow down the debt settlement process and contradict the original objectives.
However, it is important to clearly distinguish between “non-profit” and “inefficient operations”. As a company under corporate law, VAMC is obliged to ensure capital preservation and profitability. Profit should be understood as the inevitable result of a scientifically based operating process, not as the primary goal. Excessive profit targets create psychological pressure on management and result in the prioritization of easy-to-manage, profitable debts, while difficult but urgent debts need to be settled to stabilize the system.
In my opinion, VAMC needs to further accelerate its capital turnover rate to improve the efficiency of resolution of non-performing loans. With a registered capital of VND 5 trillion, VAMC can handle a debt volume of up to VND 10 to 15 trillion at market value with a good turnover rate. The main goal is rapid settlement and recovery of capital so that it can continue to be reinvested. This is how VAMC’s true success is measured.
In Resolution 79-NQ/TW, the Politburo recognized the key role of the VAMC in addressing non-performing loans, improving financial strength and reducing risks to the banking system. The VAMC focuses on promoting a professional, transparent and sustainable debt securities trading market, as well as strengthening connections and information sharing. What do you think this means for the role and position of the VAMC?
As is known, Politburo Resolution No. 79-NQ/TW on the development of the state-owned economy clearly states that all enterprises must be restructured in order to achieve the goal of double-digit growth. To do this, they must increase their production capacity and labor productivity as well as accelerate digital transformation to achieve maximum efficiency. Resolution 79-NQ/TW clarifies that VAMC and DATC are two of the institutions that need to improve their capacity and operational efficiency to support the restructuring process, particularly financial restructuring and dealing with non-performing loans in the state-owned enterprise sector and commercial banks in accordance with market mechanisms. This shows that the party and government have correctly recognized the role of these two institutions. Therefore, I believe that DATC must accelerate the privatization of state-owned enterprises to ensure efficiency, while VAMC must make a fundamental shift: from an institution that buys debt to hold it to an institution that actively manages debt and leads the market. To achieve this, I believe VAMC must develop a comprehensive and responsible plan and clearly define its role in this area.
First, the VAMC cannot simply purchase non-performing loans and then delegate the task to credit institutions. Instead, it must organize and carry out the analysis and assessment and arrange for the recovery of non-performing loans (including those acquired with special bonds). Accordingly, it needs to further restructure and operate the existing non-performing loan exchange proper and consider this as a top priority to ensure transparency.
In addition, VAMC needs to significantly expand its brokerage, advisory, auction and asset valuation services, and especially attract foreign investors to the Vietnamese non-performing loan market.
Secondly, all projects remain only on paper if there are no resources for their implementation. Therefore, it is necessary to increase the registered capital to at least VND 15,000-20,000 billion so that the VAMC has sufficient internal capacity to purchase non-performing loans at market prices, thereby achieving faster capital turnover, instead of purchasing exclusively through special bonds. At the same time, a vigorous and consistent restructuring of human resources and management methods is required. First of all, the management level from the supervisory board to the board of directors must be strengthened and clear criteria must be set: Anyone who is unreliable, incompetent, is afraid of taking action or does not want to take responsibility must be decisively removed (including the current office holders). All cases of abuse and violations of the law must be strictly prosecuted in accordance with legal provisions in order to prevent exploitation and enrichment. In addition, it is necessary to introduce a fair salary system in order to attract competent and qualified employees and build a team of experts with expertise in corporate restructuring, legal expertise, etc. A clear principle applies: whoever can handle the task should handle it; Anyone who does not meet the requirements should be replaced. These factors may not affect VAMC’s business operations in the coming period.
Thirdly, it is necessary to create a legal framework and grant special powers to VAMC. In order to meet the new functions and tasks, a clear legal framework for VAMC’s debt trading activities is required. This requires a proposal to the government to amend Decree 53/2013/ND-CP, which grants VAMC special powers to seize and realize collateral that go beyond ordinary civil credit relations. In addition, VAMC cannot be treated like the asset management companies of financial institutions or credit organizations. VAMC is not a credit institution, but a company with specialized functions and responsibilities in dealing with non-performing loans.
Fourth, it is necessary to focus resources on promoting digital transformation and using AI to support the analysis of non-performing loan data and the collateral of acquired non-performing loans. At the same time, data on non-performing loans of Groups 3 and above should be proactively used and linked by credit institutions and the Credit Information Center (CIC) to organize analysis and assessments and support credit institutions in managing NPLs and related collateral.
In summary, in my view, VAMC must meet four criteria to adequately implement the spirit of Resolution 79-NQ/TW: competent staff, strong financial resources, a broad legal framework and a strong digital transformation.
Without a professional organizational model and sufficient authority, it will be very difficult for the VAMC to fulfill its mandate to clean up the balance sheet and improve the financial strength of the banking system as intended. The VAMC must be a partner, an “extended arm” of the state to ensure the security of the national financial system.
In this new context, how does he expect VAMC to transform from a non-performing loan resolution tool to a professional asset restructuring center? that is able to evaluate the entire system and offer financial advice?
As I mentioned, my expectations for VAMC are very high. I hope VAMC will develop into a professional, independent debt settlement company and a true partner of credit institutions. In order to achieve this position, it is necessary to clearly define their role and establish their specific powers. It is currently unclear whether VAMC is treated like a typical credit institution, as its powers do not differ from those of asset management companies founded by credit institutions. An objective approach is therefore required. VAMC is not a credit institution and is therefore not subject to civil law proceedings between banks and customers. For this reason, an efficient litigation mechanism is necessary: a lawsuit with unclear reasons or as a pretext to avoid debt repayment or asset assignment must not hold up the entire debt and asset settlement process. Without decisive action, non-performing loans – particularly real estate loans – will become entrenched and waste national resources.
Successful national asset management companies around the world (for example in China or South Korea) may have immense power, but with it comes strict responsibilities and discipline. Therefore, VAMC must take a leading role in the future and create transparency in the market for trading non-performing loans. VAMC should be a place where the best experts in business valuation, financial advisory and restructuring come together and provide a professional distressed loan trading platform where not only domestic financial institutions but also international investors can trade reliably.
I repeat: if we do not soon adapt the legal framework (in particular Decree 53/2013/ND-CP) to give the VAMC a sufficiently strong legal basis, it will be very difficult to effectively manage NPLs. The VAMC must be positioned as a professional, independent debt settlement body with specific powers to protect the security and stability of the entire national financial system.
Thank you very much, sir!
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