The State Bank of Vietnam has issued two circulars on the purchase and settlement of non-performing loans and on refinancing, further stipulating the operation of the Vietnam Asset Management Company (VAMC).

The documents, which will take effect from September 15 this year, cover regulations on procedures and modality for VAMC to purchase non-performing loans (NPLs) from credit organisations or sell them to third parties.

Wholly owned by the State, VAMC with charter capital of 500 billion VND (23.5 million USD) is placed under the central bank’s management and supervision, according to Government Decree 53/2013/ND-CP on the establishment of the company.

VAMC is mandated to purchase bad debts of banks in two ways: at their book value by issuing special bonds, or at market value by using other sources.

The bonds will have a maturity period 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 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.-VNA