Banks with non-performing loan (NPL) ratios of 3 percent or more will have to sell the loans to the Vietnam Asset Management Company (VAMC), a new group due to officially begin operations on July 9 this year, according to a newly-issued decree.

According to the decree on VAMC signed on May 20 by the Prime Minister, banks that failed to comply with the regulation will be inspected by the central bank or they will have to hire an auditing company or independent evaluation firm to assess the quality and value of their assets, equity and charter capital at their own expense.

Based on the audit's results, banks will have to sell their NPLs to the VAMC to ensure NPL ratios stay at a safe level, while also restructuring under plans approved by the central bank.

According to the decree, VAMC could purchase bad debts of banks in two ways: it can buy bad loans at their book value by issuing special bonds, or at market value by using other sources.

The bonds will have a maturity of five years and banks can use them as collateral to obtain refinancing funds from the central bank. However, banks must set aside 20 percent of the bonds' value as provisions every year until the bonds mature.

VAMC will only buy NPLs that are held by credit institutions, including bad debts through credit grants, purchase of corporate bonds, entrusted investments in corporate bonds, entrusted lending and other activities in accordance with regulations of the central bank.

In addition to having to be backed with collateral, the bad loans and collateral must be legitimate and have full records and legal papers.

According to the central bank, NPLs held by the country's banks reduced to 6 percent of total loans last month against 8-10 percent last October.-VNA