The Vietnam Assets Management Company (VAMC) will realise its target of purchasing between 70 trillion VND (3.17 billion USD) and 100 trillion VND (4.74 billion USD) worth of bad debts this year, according to a source from Dau Tu (Investment) newspaper.

The paper quoted the State Bank of Vietnam's Chief Inspector Nguyen Huu Nghia as saying that the central bank had outlined a bad debt purchase and sale plan together with several measures to help VAMC reach the goal.

Nghia said the total bad debts that credit institutions wanted to sell to the VAMC had climbed to 30 trillion VND (1.42 billion USD). The number of bad debts is expected to increase after the issuance on June 1 of two circulars that provided classification of assets, the levels and methods of setting up of risk provisions, and the use of provisions against credit risks in banking activities of credit institutions and foreign banks' branches.

The two circulars contain detailed information on bad debts, and reveal that bad debts will increase.

Nghia, however, said the two circulars would also create a safe foundation for the credit institutions to better implement their risk administration work, and restructuring as well as settlement of bad debts.

"In recent times, the VAMC's purchase of bad debts has been rather slow because it had to wait for the central bank to approve a plan to issue special bonds. However, this does not mean that the banking sector's bad debt settlements have been stagnant.

"So far this year, the VAMC has bought more than 6.3 trillion worth of bad debts, thus increasing the total bad debts that the company has purchased to 45 trillion VND. In addition, the banking sector itself has already settled bad debts worth about 10 trillion VND," he said.

"Recently, the central bank approved the volume of special bonds to be issued so the VAMC would be able to accelerate its purchase of bad debts in the coming time."

A senior economic expert, who declined to be named, said that the low number of bad debt settlements was difficult to avoid since the central bank's policy could not use the state budget or foreign loans to solve bad debts. Worse still, the domestic debt purchase and sale market had not yet been created.

Also, foreign investors had shown little interest in being involved in this business, he said.

Consequently, by the first quarter of this year many commercial banks announced that their potentially irrecoverable debts had increased strongly even though their bad debt ratio was under three percent.

For instance, Vietcombank's potentially irrecoverable debts had gone up by 10 percent, to 3 trillion VND. Meanwhile, BIDV's irrecoverable debts had also been raised by 32 percent to 5.56 trillion VND, and ACB's 2.3 trillion VND.

In an attempt to increase the settling of bad debts, Nghia said one of the measures that the central bank would immediately apply was to ask the VAMC and credit institutions to jointly build debt purchase and sale plans each month.-VNA