A study on the vietnam asset management company,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY FOREIGN LANGUAGE FACULTY GRADUATION THESIS A STUDY ON THE VIETNAM ASSET MANAGEMENT COMPANY Student : Vu Thanh Mai Student ID : 15A7510149 Class : K15ATCA Supervisor : Ms Pham Thi Hoang Anh(Assoc Prof Ph.D) Hanoi – May 2016 ACKNOWLEDGEMENTS I would like to express my deep and sincere gratitude to my supervisor, Ms Pham Thi Hoang Anh (Assoc Prof PhD), for her valuable guidance, correction, helpful suggestions and detailed comments from the preparation to the completion of this study I also take immense pleasure in thanking all of my teachers in Foreign Language Faculty at Banking Academy for their assistance and precious lessons Finally, my special thanks are extended to my family members, my friends and everyone who have always supported and helped me to complete this thesis directly and indirectly i ABSTRACT Vietnam Asset Management Company, a powerful legal entity being established by the State Bank of Vietnam to restructure the bad debts credit institutions, is expected to help decrease bad debts to manageable levels by 2020.The Vietnam Asset Management Company is now playing an important role in the debt settling process In the context of recent Vietnamese economy, the forming of the Vietnam Asset Management Company is a sound and necessity decision This study will examine the Vietnam Asset Management Company, more specific about its functions and structure This includes the establishment, objectives, operational principles and main activities of the company The study will also illustrate an analysis of the operation of the Vietnam Asset Management Company to point out not only the positive features but also the weakness of the company Suggestions relating to the issue will also be made as the final part ii Table of Contents ACKNOWLEDGEMENTS ABSTRACT ii LIST OF TABLES AND FIGURES v LIST OF ABBREVIATIONS vi CHAPTER I: INTRODUCTION Rationale 2 Objectives of the study Research method Scope of the study Structure of the study CHAPTER II: LITERATURE REVIEW Theoretical framework 1.1 Definition of AMC 1.2 Operation aims of AMC 1.3 General roles of AMC An overall picture of AMCs in Asia CHAPTER III: AN OVERVIEW OF THE ESTABLISHMENT OF VAMC Macroeconomic background 1.1 General bad debts situation in the period of 2011 – 2013 1.2 Solutions to non-performing loans The establishment of VAMC 10 2.1 Legal grounds for the establishment 10 2.2 The structure of VAMC 11 2.3 Objectives and principles of VAMC 11 A comparison of VAMC with other outstanding asset management companies in the world 11 iii CHAPTER IV: METHODOLOGY AND DATA ANALYSIS 14 Main activities of VAMC 14 1.1 Measures to purchase bad debts 14 1.1.1 Book value 14 1.1.2 Market value 16 1.2 Measures to settle debts and collateral 17 1.3 Measures to restructure bad debts and support borrowers 17 Evaluation of VAMC’s activities 18 2.1 Achieved results 18 2.1.1 Debt purchasing progress 18 2.1.2 Debt tackling progress 22 2.2 Weakness and limitations 23 2.2.1 As for VAMC 23 2.2.2 As for credit institutions 24 2.2.3 About the legal system 25 2.2.4 Other difficulties and challenges 27 CHAPTER V: RECOMMENDATIONS 29 Development plan of VAMC from 2016 to 2020 29 1.1 Focus on debts settlement after purchasing 29 1.2 Purchase debts basing on the market value 29 Recommendations 30 2.1 As for VAMC 30 2.2 As for State bank of Vietnam 32 2.3 As for commercial banks 32 CONCLUSION 34 REFERENCES 35 iv LIST OF TABLES AND FIGURES Table/Figure Page Figure The ratio of bad debt over total outstanding loans through years Table A comparison between Decree 53 and Decree 34 Figure Several banks sold non-performing loans to VAMC in 2013 18 Figure The amount of non-performing loans from different banks 19 being sold to VAMC in 2014 Figure Bad debts purchased by VAMC from December 2013 to 20 December 2014 Figure Accumulation of VAMC’s purchase through years 21 Table Classification of debts purchased based on their purpose in 26 2014 v LIST OF ABBREVIATIONS VAMC Vietnam Asset Management Company AMC Asset Management Company SBV State Bank of Vietnam NPLs Non-Performing Loans DATC Debt and Asset Management Corporation VND Viet Nam Dong vi CHAPTER I INTRODUCTION Rationale It is apparent that bad debts together with bad debts solving has always been the major concern of nations in the world, including Vietnam’s economy recently When the volume of bad debts increases, there would be a potential that the economic development in general and the performance of banks in particular might be threatened In 2012, the rate of non-performing loans to total loans held by Vietnamese banks reached 4.76 percent, exceeding the warning threshold that such a large amount of bad debts would cause a serious problem In response to the urgent situation, several measures had been carried out in order to tackle the issue, such as direct support from the Government through the provision for financial institutions or adjustments of the provisions relating to the classification and management of bad debts; however, hardly any improvements was recorded It was then that Vietnam asset management company (VAMC) came into the spotlight Ever since VAMC was established, it has received so much of attention from people who work in banking and financial fields and also the citizens Nevertheless, it is undeniable that apart from significant achievements of this model, it also comes up with some limitations All the above mentioned reasons and factors have inspired me to conduct a research titled “A study on the Vietnam asset management company” Objectives of the study The research will focus on the two following aspects Firstly, it will clarify the theoretical background knowledge relating to the establishment and operation of VAMC Secondly, the study will also put forward the effectiveness as well as the weakness of the model, thus proposing some potential recommendations and suggestions Research method Within the study, data from varied sources such as the State bank of Vietnam's website, the Government's website and VAMC's website had been used The references might also come from judgments of domestic and international economic experts Scope of the study The paper will mainly focus on the recent impacts of VAMC on Vietnam’s economy, from 2013 to 2015 A development target of the company for the period between 2016 and 2020 will also be used as an analysis source Structure of the study Chapter I (Introduction) states the rationale, objectives of study, research method, scope of the study and the structure of the study Chapter II (Literature review) deals with primary definitions and characteristics of AMC before mentioning several typical establishments of AMCs in the world Chapter III (An overview of the establishment of VAMC) presents the macroeconomic background of VAMC, including the foundation of the model and the comparison of this company with other AMCs in the world Chapter IV (Methodology and data analysis) describes the functions of VAMC in the real situation as well as an evaluation of VAMC’s activities Chapter V (Recommendations and conclusion) illustrates some suggestions for future target of VAMC and includes the summary of the study CHAPTER II LITERATURE REVIEW 1.1 Theoretical framework Definition of AMC The idea of an asset management company has been proposed in many countries Depending on distinct economic conditions and development policies of each nation, asset management companies would have different names, features, rights and obligations However, it can be understood that AMC is an institution with special aims, powers and responsibilities in the process of managing and buying non-performing loans from the banking system as well as solving them in an optimum way 1.2 Operation aims of AMC The primary aim of an AMC is to restore strength of the banking system Once the ratio of bad loans over total outstanding loans is significantly high, the financial capacity of banks is likely to reduce, leading to the fact that banks may face greater risks Consequently, in order to strengthen the banking system, the AMC will buy and take over the bad debts before seeking ways to wisely and efficiently deal with them The activities of this company will always focus on how to maximize the value of outstanding debts and to minimize the costs required in the process of reforming the banking system and businesses Moreover, because the trading targets of AMC’s purchase are mainly bad debts with low collateral value or even assets without needed documents, the company does not run for the purpose of profit 1.3 General roles of AMC As for banks: The establishment of AMC is an objective necessity for economies with the NPLs ratio above certain levels or those that are facing serious problems of outstanding debts AMC plays an important role in the restructuring of banks, preventing crises by providing a mechanism for weaker banks to sell assets to raise capital or debentures As for the economy: Debt trading promotes goods and capital flows in the economy, contributing to stabilize the financial-banking system It also regulations In the accumulated data from December 2013 to December 2014, VAMC had acquired 133.555 trillion VND of outstanding principal with the purchase price of 108.652 trillion VND from 39 credit institutions Figure Bad debts purchased by VAMC from December 2013 to December 2014 SS (Source: Tri thuc tre News, 2015) After centralizing in buying non-performing loans through special bonds for a period, from the beginning of 2014, apart from continuing implementing such purchase, VAMC focused on the tasks related to debt handling process such as organizing loans, carrying out interest remission, collecting debt, selling debt and collateral; initiatively making contact with domestic as well as international financial institutions and organizations; cooperating with banks to capture information in order to provide adequate evaluation, analysis and measures to support enterprises in the most appropriate way Besides, VAMC also continued to improve business skills that were correspondent to the real situation to ensure the benefits between the clients, the banks and the company as a whole From January to September, 2015: The year 2015 was the last year of the period 2011-2015 of the Credit Institutions Restructuring Scheme and was also an important transitional year of the Bad Debts Solving Plan Therefore, the government and the central bank drastically implemented changes to 21 thoroughly tackle bad debt - one of the major factors leading to the macroeconomic instability in Vietnam From January to September 2015, VAMC’s bad debts purchased from credit institutions reached 91.314 trillion VND of outstanding principal with the purchasing price of 82.155 trillion VND Thus, by the end of the third quarter of 2015, VAMC’s purchase had exceeded the amount estimated at the beginning of the year (around 80 trillion VND) Figure Accumulation of VAMC’s purchase through years (Unit: billion VND) 123000 95000 77355 40000 28194 19630 10000 Nov 2013 Dec 3929 6075 Mar May 11414 Jun 6000 Aug 22201402 2014 5888 Oct Dec Mar 13708 Apr Jun Aug 2015 (Source: Collected data from sbvamc.com.vn) 2.1.2 Debt tackling progress In 2013, VAMC’s buying bad debt was 39 trillion VND and recovered 200 billion VND In 2014 the figures were 82 trillion VND and 4.2 trillion VND respectively Compared with recovery plan which projected the reclaim to be 2.5 trillion VND the implementation was far exceeded It could be said that in 2013 and 2014, the results of debt purchased and debt recollected of VAMC both surpassed the previous target This has shown that VAMC is actively promoting the process of debt after purchasing From the beginning of 2015 to September, VAMC’s debt recovery, debt sale, collateral sale were 22 worth 9.827 trillion VND, doubling that of 2014 To sum up, as of September 2015, a total amount of 14.847 trillion VND was recovered from the debts 2.2 Weakness and limitations Looking back on the whole process of tackling bad debts, it can be seen that initial success is achieved thanks to significant contributions from the Vietnam Asset Management Company as a large volume of bad debts has been purchased by VAMC However, the solutions on how to deal with those nonperforming loans after buying it still remain a big question Furthermore, although flexible measures have been used by VAMC to solve bad loans such as public sale, auction, debt sale through direct forms of treatment or authorize credit institutions,… the total amount of debts being recovered only accounted for quite a small proportion compared to the debt that VAMC have purchased The establishment of VAMC was once considered a “magic wand” for the bad debt situation in Vietnam; however, after more than two years from its foundation, the company has shown several shortcomings in the operation as well as the difficulties and challenges it has to face in the reality 2.2.1 As for VAMC The real working principle of VAMC: The running process of VAMC can be understood as follows: first, non-performing loans are transferred from credit institutions basing on the book value to VAMC in exchange for something called a “special bond”, which can be used by these institutions to borrow money from the SBV to refinance at a very low interest rate From this point of time, VAMC is considered to have full rights to the above bad debts The company then classifies, organizes and tries to sell these debts for domestic or international organizations or implements measures that have been stipulated in the rules If the debts are successfully solved, a rate of percent out of the whole amount will go to VAMC while the banks will earn the rest However, in case VAMC cannot tackle the debts, the company will just wait for the special bonds to be mature before sending the loans back to banks, bringing no improvements in the situation It can be seen from the whole process that the risk the company has to bear is nearly zero For this reason, it can be said that VAMC is a mere place to keep the bad debts for banks instead of taking over those loans It seems that VAMC has been just an agent to collect the bad debts so that banks can “clean” their accounting balance sheet No pressure to solve the debts: There is one thing we should mention is that VAMC does not work for profit purpose In addition, VAMC does not 23 have to spend any real money to buy bad debt as all the payments are made by the State bank, thus VAMC has no fear of risk or loss, leading to the fact that the company makes little or no efforts in solving the problems It does not matter if there is loss or not because the SBV certainly can refinance the company This loss is only recorded in documents and if it is not published, it does not affect the operation of the company in general This has proven that the chartered capital of 2000 billion VND is just a symbolic feature Besides, there is no fixed time limit for VAMC to conduct its measures, resulting in the situation when the company bears no pressure to quickly settle debts at the lowest cost Keeping bad loans or restructuring enterprises in the context when the macro-economy has not fully developed may lead to serious risk and damage Another risk coming from the exclusive right of VAMC is that the company has the power to ask credit institutions to provide records and information relating to their operation; at the same, time credit institutions with bad debt level from percent are obligated to sell such loans to VAMC This may result in the situation when VAMC tries to purchase as much as bad debts as it can due to its power; however, after that the company may not actively find a solution to tackle the problem, leading to an issue when bad debts even become worse when VAMC gives them back to credit institutions 2.2.2 As for credit institutions It is apparent that the sale of bad loans to VAMC will help banks to relieve pressure of setting aside the provision immediately as the reserve will be allocated through a period of maximum years Receiving refinancing from the State bank not only helps credit institutions to have a better balance sheet, but also creates the basis to widen the credit level of the economy However, many commercial banks still hesitate to cooperate with VAMC due to the following reasons Firstly, with banks that already have set aside sufficient provision, the sale of bad debts to VAMC will obviously increase the amount as by this time the value of the collateral will not be calculated in the provision At the same time, banks which are under the obligation to sell debt to VAMC will have their reputation negatively affected in the eyes of customers and shareholders Certainly, no banks want to be on the list of weakness Secondly, the bad loans that are bought by VAMC often associate with collateral, thus after the purchase, the bank will no longer have the rights to 24 handle this debt anymore While the settlement of VAMC for this debt still remains a myth, there is a possibility that the bank must continue to take responsibility for this debt and therefore must repay the money that is previously received from the State bank Thirdly, VAMC mainly hands over the special bond to credit institutions, this kind of bond is unprecedented in Vietnam and has neither been guaranteed by the government nor had clear criteria of the refinancing process or the refinancing rate Finally, VAMC only handles debts with guaranteed assets; however, there is still a small amount of non-performing loans that banks are lending under the unsecured terms, of which the main portion of bad debt that most banks want to solve Currently, commercial banks are trying to deal with this debt by requesting additional mortgage but this method is quite limited; another option is to increase risk provision, however, if banks follow this measure, it is likely that they will have to accept profit deficit and capital loss Consequently, banks somehow will be motivated to hide nonperforming loans by debt rescheduling or relending in order for the bad debt rate to be less than percent so that they not have to sell bad debts to VAMC This situation has limited the working efficiency of VAMC, making its operation less effective and attractive 2.2.3 About the legal system The dependence on the State bank of Vietnam: In every operating procedure of VAMC, the State bank acts as a referee controlling the game by setting out regulations and implementing supervision with the aim to unfreeze credit level, spur economic growth However, the slow response of the SBC is considered an extremely critical factor causing operational stagnation of VAMC A lack of adequate rules relating to the issue: A series of legal documents supporting the VAMC’s activities in particular and the legal trading environment in general has not been issued on time, such as the regulation on the operation of the VAMC, regulation relating to the issuing of special bonds, directions to set up refinancing rate for bonds in particular, the sale of debts and assets, the participation of secondary investors Moreover, if the austerity and transparency of these rules are not strictly reserved, it may cause market distortion as well as create group benefit risks 25 Besides, VAMC does not even have the right to actively handle bad loans purchased by collateral Thus, credit institutions still have the right over the collateral of the loan while VAMC does not play an important role in the disposal of collateral of loans In fact, if banks closely cooperate with VAMC, the company can easily demonstrate its role and vice versa, if the credit institutions refuse to cooperate, VAMC may fail in the work of dealing with debts A lack of a debt trading market: It is emphasized that even if VAMC is given more real money, it still cannot handle all debts as there is no market for debt trading in the current system Targets for loan business are also limited due to the regulations in Vietnamese law (Nguyen Quoc Hung, 2015) According to this judgment, neither bad debt trading market nor the directions on who can buy the bad debts from VAMC is regulated by the law For instance, Law 69/2014/ QH13 stipulates: "The enterprise is entitled to sell overdue debts, doubtful debts and debts that not have the ability to recover Enterprises can only sell the debt to the economic organization with the business function of debt trading; selling directly to the debtor is not allowed." Thus, VAMC is stuck in a situation when it can buy bad debts from credit institutions but cannot sell those debts to a third party without a business license on debt trading Currently, only VAMC, DATC and AMCs of financial institutions can implement bad debt transactions As a consequence, VAMC can handle the debts purchased only by the sale of collateral to recover the debt instead of selling it to a third party An imperfect legal framework: In recent years, many international organizations as well as foreign investors have worked with VAMC to find out the actual operations of the company, the legal framework in implementing debt settlement and the method in which bad loans are purchased by special bonds These investors have expected to witness a transparent and favorable proceeding related to debts from the operation of VAMC However, after studying the legal system in Vietnam on issues related to the trade and debt settlement, the ownership of land, the restructuring of enterprises and particularly the limited role of VAMC on decisions to sell debts and collateral , not many of those investors have made the next move In addition, the disposal of bad debts is now closely tied to the legal framework for debt resolution of the judicial system in Vietnam The favorable 26 legal system must ensure that businesses which are no longer able to afford the debt should go bankrupt as well as ensure a quick liquidation of collateral and safe protection of creditor’s interests Due to the fact that processing bad loans is linked to the performance of the legal framework, speeding up the procedure will minimize the cost of debts recover Unfortunately, yet this is still considered one of the “bottlenecks” of Vietnamese legal system for many years with no sign that it will be solved in the near future 2.2.4 Other difficulties and challenges The effect of the real estate market on the operation of VAMC: Due to the high concentration of bank credit in the structure of social capital and bad debts in the field of real estate (including the capital construction of urban areas, the traffic work…), the improvements of bad debt trading market of VAMC hugely depends on the prosperity of the real estate market, which has already been negatively affected by speculation (Nguyen Minh Phong, 2014) Table Classification of debts purchased based on their purpose in 2014 Purpose of using fund Number of loans Outstanding principal (billion VND) Proportion (percent) Manufacture 777 8,845 7.15 Business 3,210 31,911 25.78 Real estate 5,926 83,003 67.07 (Source: Financial report of the SBV in December, 2014) New operating model: In fact, the specific model in which bad debts are solved without the use of budget has never been introduced in the world before; because of this reason, the VAMC’s task is to design, develop and implement new measures at the same time Therefore, the business structure needs to change constantly to conform to the demands of practice, making the process even become more challenging in the context of the Vietnamese economy Human resources: In order to deploy all transactions being mentioned in prescribed rules, VAMC requires staff not only to be competent in business, but also to have firm knowledge and practical experience to solve difficult 27 tasks in the business industry However, the selection of qualified staff meets many difficulties; not yet to mention that VAMC does not operate for profit targets, thus making it challenging to attract talented people to contribute to the company To sum up, the mechanism of tackling bad debts through VAMC model which is currently implementing cannot create real motivation and benefits for related parties, therefore cannot really contribute to the process of settling nonperforming loans As a consequence, the problem of moral hazard is inevitable for both banks and the VAMC Besides, the fact that the legal environment for the debt settlement and bankruptcy with minimum property rights is not transparent enough and does not practice in reality will be the obstacles which prevent the handling debts from succeed It can be said that bad debt measures nowadays need to be redesigned to be more suitable, comprehensive yet substantive 28 CHAPTER V RECOMMENDATIONS Development plan of VAMC from 2016 to 2020 1.1 Focus on debts settlement after purchasing After two years of buying non-performing loans in order to contribute solving difficulties for customers and credit institutions, this time is an opportunity for VAMC on restructuring In case there is no measure to overcome bad debts, collection of debt, sale of assets and auctions must be implemented From 2016, VAMC will actually have to walk on its own feet as all of bad debts of credit institutions have already been below the percent level, thus the State bank will not need to force commercial banks to sell bad loans for VAMC Therefore, the relationship between the company and credit institutions is similar to the one between two enterprises on the trading of debt Consequently, after the purchase of debts through special bonds, VAMC’s primary aim in its operating scheme from 2016 to 2020 is to concentrate in the treatment for purchased debts (debt sale, sale of collateral, etc.) 1.2 Purchase debts basing on the market value Another project from this point of time is that if bad debts incurs, VAMC will purchase it at the market price, limiting the transaction through special bonds It is clearly seen that buying bad debt at market prices would speed up the process of tackling bad debt in a more favorable way On this issue, Decree 34 as an amendment and supplement for Decree 53 on the establishment, organization and operation of the VAMC has officially taken effect, allowing the company to buy non-performing loans at a market price To be more specific, VAMC can now issue bonds to buy the bad debt basing on the market value in the issuance plan that was approved by the State Bank According to this program, VAMC is permitted to issue bonds in four ways: tender issue, underwriting, agent issue and direct selling In order to achieve the goal, VAMC plans to perform the following tasks, including developing purchasing strategies for bad debts on the basis of the classification of bad loans bought by special bonds in order to implement a definitive takeover at the actual value By the end of the year 2016, the number of bad loans that VAMC has purchased is approximately 150 trillion VND to 200 trillion VND with the amount of bad debt recovery reached 20 trillion to 29 40 trillion, so the minimum amount under VAMC’s management should be in a range from 100 trillion to 150 trillion Among them, the banks have already had a provision at around 50 percent, thus negotiating to buy bad loans at an appropriate value corresponding to the market price will certainly be quicker yet still more reasonable Alternatively, VAMC will contribute to the capital of businesses and the conversion of debts into equity to restructure enterprises having the ability to recover from production Another resolution is to continue restructuring debts with positive resilience while at the same time guaranteeing clients to get loans at local banks Recommendations Although the debt settlement model of VAMC has received a lot of different viewpoints from the date of its establishment, it is quite impossible to find another model that surpasses the current one in Vietnamese economic situation at the moment However, this does not mean that VAMC shall satisfy with its achievements It is irrefutable that there are still many shortcomings and limitations existing in the operation of VAMC that need to be tackled as soon as possible for better results in the long run Apparently, changes should come from not only the company itself but also the whole legal system with the contribution of the public in general Practical and promptly modifications and improvements should be carried out, and below are some suggestions of this study 2.1 As for VAMC Raising chartered capital: VAMC should continue increasing its chartered capital Newly issued Decree 34/2015/ND-CP has allowed VAMC to raise its chartered capital from 500 billion VND to 2,000 billion VND However, with this amount of capital, the purchase of debt at market price of VAMC is still limited to the value and the volume of bad loans that the company can buy Recently, VAMC has sent a proposal to the SBV to raise its chartered capital by 1,500 billion VND in order to enable debt purchase at market prices Only by doing so can VAMC enhance its financial strength to buy loans at market rates or to contribute capital to restructure debts Gaining independent rights: VAMC should be given more independence as the company’s current activities are largely depending on the State bank, both in policies and mechanisms as well as the human resources Therefore, the State bank should grant special rights to VAMC so that the company can quickly process the current problems 30 Wisely analyzing debts: It is quite dangerous if VAMC can purchase debts but then cannot sell them; therefore to avoid that negative prospect, VAMC needs to choose carefully which debts to buy In other words, even if the company does not use real money to conduct the transaction, not every loan should be purchased VAMC should carry out precise analyze the true value of collateral, at the same time design the auction rules and classify loans for a quicker settlement Moreover, it also should be noted that many organizations buying debts for profit purposes They merely want to make a quick trading for the loans when the main aim here is to help the debtors to pay the debts themselves Due to this reason, wisest decisions of the target to sell debts to should also be made by VAMC Complete the legal framework: VAMC requires a completed legal environment that is powerful enough for its activities To be more precise, the company needs a special law on the operational mechanism, enabling it to timely handle bad loans for effective outcomes By this point of time, the rules relating to the operation VAMC only stop at theoretical documents such as circulars and decrees VAMC should be allowed to dispose of collateral, transfer and sell debts without the need of permission from the borrower According to the new circular, VAMC has more autonomy rights over the valuation of bad debts; however, the legal provisions related to the handling of collateral (especially collateral in the forms of real estate) still hinder the sale of debt of the company For the past two years, the fact that VAMC had implemented buying debts by special bonds has always been considered as a great effort; however, in the current condition, VAMC is facing many difficulties in handling property and the right to dispose of collateral Even the legal framework to protect VAMC’s staffs is unclear when conducting valuation or sale of assets or auction These are factors making parties like VAMC to meet a lot of limitations when collecting debts Create a debt trading market: Foreign investors should be allowed to participate in the procedure to bring clean cash flows the economy, creating competition among investors that engages in debt trading market Currently there is neither a bad debt trading market in Vietnam nor an available market for VAMC to proactively sell bad loans 31 In addition, because the pricing mechanism of bad debt in Vietnam has not been built, it will take some time to evaluate the sale of bad debt and therefore transactions relating to bad debt cannot be done quickly A developed legal framework will be the basis for a thriving market of buying and selling debt, thus encourage domestic and international investors to engage in the purchase and sale of bad loans 2.2 As for State bank of Vietnam Enhancing transparency: Playing an important role in the operation of VMAC in particular and the debt settlement process in general, the SBV is expected to give clear and transparent information to the public about the procedure, including the positive outcomes, the shortcomings as well as the risks involved Especially, the State bank should confirm that VAMC is definitely not “a magic wand” to the economy as the majority of citizens not understand the nature of VAMC, thus expect too much from the company’s achievements The establishment of VAMC does not promise to revive the whole system in general because apart from bad debts, there are still many other inadequacies existing in the Vietnamese economy Complete the mechanism and policies: With the aim of motivating credit institutions to sell bad debts instead of hiding those loans, one solution for the State bank is to develop the mechanism on the debts tackling process of VAMC, especially the discount rate over special bonds or the amount of money the company receives when the bonds matured Only by being well instructed can banks have wise consideration to reduce risks 2.3 As for commercial banks Declaring explicit statistics and figures: In recent years, there have been many different announcements of bad debts published This situation is due to two main reasons: firstly, banks themselves may not have a good preparation over the debt classification and risk provisioning; secondly, they may intentionally mislead the data assessment This will bring back many limitations as only by using accurate and completed data can the settlement of bad debts be effective Currently, the banks are followings the regulations of the State Bank in Circular 02/2013 on the classification and risk provisioning and this movement has improved the determination of bad debt ratio Supervisors should have rules to force commercial banks to publish the source data that helps VAMC to determine the exact level of bad debts in order to solve them in the most effective way 32 Implementation of control measures of credit quality: If banks pursue growth objectives, they will often loosen conditions for granting credit, which may create a risk of bad loans in the future Therefore, banks should be always in control of their credit quality in order to solve bad debt problems in general Actively coordinate with VAMC in debt settlement: Commercial banks and VAMC should cooperate with each other to select which bad loans to be traded instead of buying every debt Besides, two parties can support each other in the consideration over the assessment of the collateral’s value Simultaneously, banks can also participate in the design the bidding mechanism or to sort suitable groups of bad debts 33 CONCLUSION Being under the management of the State Bank of Vietnam, VAMC is on its way to help banks and enterprises to deal with their bad debts The initial achievements of VAMC have proven its effectiveness in the debt settling process in general; however, it should be noted that apart from these results, there are still a lot of shortcomings as well as challenges associating with the operation of the company The role and function of VAMC should be recognized wisely in order to gain trust and support from the public Moreover, except for changes from the government and other credit institutions, improvements should also come from the company itself to assure the accomplishments in the long run and the contribution to the development of the whole economy The scope of this study mainly focuses from the period from 2013 to the end of 2015, thus it may have unavoidable limitations in the examined topic Due to this reason, amendments and supplements may be needed for further research 34 REFERENCES Chau Dinh Linh 2014 A comprehensive look of bad debt situation in Vietnam Banking University of Ho Chi Minh Le Thanh 2014 To settle bad debts basing on market mechanism Youth Newspaper, September 2014 Le Phuc Yen 2014 No motivation in the process of VAMC Retrieved from www.fetp.edu.vn Nguyen Thi Quynh Huong 2015 Improving the capacity of processing bad debts of VAMC in the future Banking Reviews, vol 161 Nguyen Quoc Hung 2015 VAMC – years to look back Special issue of the Vietnamese Banking Overview, no 20 Nguyen Minh Phong 2014 How can VAMC continue the operation People Newspaper, August 2014 Nguyen Thu Hang 2014 The pros and cons for banks to keep special bonds from VAMC Business Times, August 2014 Phan Huy Duc 2013 AMC’s models in Asian countries Retrieved from tapchitaichinh.vn Pham Huu Hong Thai 2012 Settling debts through AMCs and the lesson for Vietnamese economy Financial University 10 Truong Minh Phuoc 2015 An effective tool to tackle bad debts Retrieved fromwww.enternews.com 11 Other sources from below websites: sbvamc.com.vn sbv.gov.vn www.ncseif.gov.vn vneconomy.vn www.nhandan.com.vn tapchi.hvnh.edu.vn 35