Although the newly-established Vietnam Asset Management Company is hoped to resolve the problem of rising bad debts, banks have shown little interest in the company.

 Banks complain about 20% contribution to risk prevention fund

VAMC would buy bad debts from banks via self-issued bonds. The bonds would have no interest rate and credit institutions could use them to apply for refinance loans.

Banks, on the other hand, are not enthusiastic that the bonds are set with only a five-year time limit to resolve bad debts. In addition, banks would be required to contribute 20% of the funds from VAMC bonds towards risk prevention each year. If, after the five-year limit, bad debts have not been successfully resolved, banks would be required to use the bonds to retake the debts.

Many banks commented that the spending on risk prevention fund was the main issue that made them reluctant about the VAMC project.

Tay Han Chong, CEO of MeKongBank, said that the measures being taken by VAMC only helps to delay dealing with the bad debt issue.

Another bank leader in HCM City said VAMC will be a powerful tool for institutions who are in need of a last resort, but that the mandatory spending on risk prevention makes banks wary of accepting. "Banks will have to spend their profits on contributions to the fund, so there will not be many perks for those institutions who accept the programme," he said.

Nguyen Gia Dinh, Vice Chairman of Sacombank, added, "During times when so many businesses are experiencing financial trouble banks must be somewhat patient and keep rates low. Our only option is to nurse these bad debts for a while and extend payment deadlines if necessary. Once the business environment recovers we will be able to recoup the capital."

Cao Sy Kiem, member of the Monetary Policy Consultant Committee, said, "Of course, spending on the risk prevention fund will affect the banks' profits, however, banks banks are not earning much profit in the current situation anyway. Banks and enterprises will have to work together in order to forge a final solution to the bad debt problem."