Many banks are hoping to offload their bad debts on the new asset management company after the central bank removed a major hurdle to selling their bad debts to the new asset management company, according to analysts.

The State Bank of Vietnam (SBV) recently set up the Vietnam Asset Management Company (VAMC) to buy banks bad debts, but there was scepticism about its effectiveness since the VAMC was only expected to buy debts backed by collateral.

But the central bank has done away with the requirement in a circular that took effect on September 15.

The SBV in fact issued two circulars taking effect on September 15, one containing regulations for VAMC's purchase of debts, and the other on refinancing against bonds the VAMC will issue for the debts.

According to analysts, the circulars are vital since they provide comprehensive guidelines for purchasing and handling distressed debts.

They also spell out the process of selling and buying the debt between VAMC and third partners.

All lenders whose non-performing loans are in excess of 3 percent have to compulsorily sell the debts to the VAMC. Failure to do so will attract penal measures from the central bank.

The VAMC will buy the debts by issuing interest-free bonds worth their book value.

The banks can then get refinancing from the SBV against the bonds.

The circulars are expected to remove the bottleneck plaguing the economy and help banks clean up their balance sheets and strengthen financial capacity, enabling them to lend again to businesses, the analysts said.

SBV Governor Nguyen Van Binh said this year the VAMC would only be able to buy bad debts worth 30 trillion VND (1.42 billion USD) against a target of 70 trillion VND.

But an official said the VAMC would only buy the debts this year and be able to sell or recover them next year.-VNA