Starting 2016, the Vietnam Asset Management Company (VAMC) will mainly buy non-performing loans (NPLs) from credit institutions at market value and restrict using special bonds for the purchase.

According to VAMC Chairman Nguyen Quoc Hung, from next year, VAMC will also focus on selling collateral assets and NPLs that it bought from lenders.

VAMC currently issues special bonds in return for bad debt, which banks may use as collateral to secure funding from the central bank.

It also mainly buys bad debt at book value determined by lenders who price properties backing loans higher than current market rates. Properties are collateral for about 95 percent soured loans bought by VAMC.

From next year, VAMC will also organise bidding to sell collateral assets by order of the court in accordance with Circular 18/2014/TT-BTP.

It will also contribute capital and transfer the purchased soured loans into capital contributed to restructure firms that are capable of recovery.

In addition, it will also restructure solvent NPLs and act as a guarantee for debtors.

If backed by strong financial status, VAMC also plans to buy stakes at credit institutions to qualify for taking part in the institutions' restructuring.

This year, VAMC targets to use special bonds to buy at least 100 trillion VND (4.67 billion USD) NPLs, apart from selling at least 10 trillion VND (467.28 million USD).

It is also conducting a pilot purchase of bad debt worth roughly 5 trillion VND (233.64 million USD) using market valuations.

According to experts, legal complications play a major role in the slow progress of bad debt handling, as it contains insufficient links between judicial and executive agencies, creating bottlenecks in capital flows and bad debt handling.

Lawyer Truong Thanh Duc, Chairman of law firm Basico, said that a major stumbling block in handling bad debts is the sector's legal framework, with conflicting laws allowing debtors to postpone repayments.

Tran Thi Hong Hanh, Secretary-General of Vietnam Banks Association, noted that the law has not kept pace with problems arising in handling bad debts.

Hanh said there are conflicts between different laws. For example, the civil law allows land to be used as collateral, but the land law does not permit it, which can lead to a credit agreement between a bank and a debtor being annulled in court.

Nguyen Huu Nghia, head of the Banking Supervision Agency at the State Bank of Vietnam, observed there are many regulations in the civil law, civil procedure law, civil law enforcement, land law, and construction law that hinder the handling of bad debts by financial institutions as well as VAMC and these must be addressed.-VNA