Vietnam Asset Management Company to issue new type of bonds to financial institutions selling bad debts.
The State Bank of Vietnam (SBV) has issued Circular No. 14/2015/TT-NHNN regarding the purchase and sale of bad debts by the Vietnam Asset Management Company (VAMC).
The Circular will take effect on October 15.
VAMC is to purchase bad debts in accordance with the market price via issuing bonds directly to financial institutions selling such bad debts.
It will continue to implement its bad debt handling process via the special bonds it issued in the past.
As a new method of handling bad debts, financial institutions will have the right to approve the sale and evaluate the price of the bonds. The new bonds from the VAMC can be used to make payments and transfers from financial institutions to the SBV, which cannot be done with the special bonds.
After VAMC issues the new bonds, financial institutions do not have to make risk provisions for the value of any bad debts.
The new type of bond is defined as having a risk ratio of zero when calculating the Capital Adequacy Ratio (CAR), while the special bond has a risk ratio of 20 per cent.
Financial institutions can use the bonds in open market operations.
VAMC has proposed the SBV increase its charter capital to VND1.5 trillion ($66.73 million) so it can issue the new bonds.