The Vietnam Asset Management Company (VAMC), a powerful legal entity established to restructure the bad debts of the State Bank of Vietnam (SBV), officially began operations in Hanoi on July 26.

The opening ceremony was attended by representatives from the Party, National Assembly, Government, ministries, international organisations, banks and credit institutions.

Speaking at the event, State Bank Governor Nguyen Van Binh said in accordance with regulations, VAMC is expected to help decrease bad debts to manageable levels by 2015.

He said VAMC will play an important role in the context that bad debts have surpassed the ability of every credit institution to solve. However, VAMC can not solve the bad debt issue alone but will also coordinate with various ministries and sectors.

VAMC, having a charter capital of 500 billion VND (23.8 million USD), will work in a non-profit capacity. It is responsible for preserving and developing the State's capital.

The company's activities will include buying bad debts from credit institutions; revoking, recovering, buying and selling debts and assets; investing, contributing capital and buying shares.

Newly-appointed chairman of the VAMC board Dang Thanh Binh said banks with bad-debt ratios of three percent and above will be required to sell its bad debt to VAMC.

The company will purchase the bad debts of credit institutions in two ways: By buying bad loans at their book value through the issuance of VAMC's special bonds, or at market value by using other sources, he said.

The bonds will be valid for five years with a zero percent interest rate. The banks will have five years to free themselves of bad debts, but they will still have the responsibility of managing the debts.

During the five-year period, the banks will have to make a 20 percent provision for the bonds.

Nguyen Huu Thuy, VAMC General Director, told the Banking Times that to help credit institutions restructure their operations quickly, it needs an asset management company with strong financial resources that is supported by special regulations issued by the Government and the National Assembly.

In addition to capital resources from the Government and domestic investors, Thuy said VAMC expects to receive support from foreign investors as well.

VAMC is expected to help the country to resolve roughly 80-100 trillion VND (3.8-4.7 billion USD) in bad loans with a projected loan recovery rate of 20-40 percent.-VNA