Opening market to foreign investors key to NPLs in Vietnam: IFC

Vietnam should promptly open the non-performing loan gate to international investors as the country does not have sufficient resources to solve NPL problems, an International Finance Corporation (IFC) official said Wednesday.

“Let’s open the market to foreign investors. Bring in those who want to do business,” Darryl Dong, IFC Vietnam's principal country officer, told an NPL workshop held by The Investor in Hanoi to help improve amendments to Vietnam’s current Law on Credit Institutions.

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets.

At present, banks in Vietnam deal with NPL problems by selling them to the state-run Vietnam Asset Management Company (VAMC).

“We should solve the NPL problem. Don’t pass it around,” Dong said. “VAMC and banks are working hard but there are billions of dollars in NPLs in Vietnam.”

He stressed that VAMC does not have adequate resources to solve NPLs, therefore Vietnam needs game changers who are foreign investors, but the domestic NPL market is not open to them. Meanwhile, several Asian countries, including India and the Philippines, have opened the market to go global.

“Vietnam needs a good NPL law to attract investors,” he suggested as Vietnam’s current Law on Credit Institutions governs NPL issues.

“Others think that Vietnam cannot open the gate but I think we can. Let’s play big, open the NPL gate.”

He said the IFC has been present in Vietnam since 1992 but has not made any investment in NPLs in the country due to the absence of an NPL market.

Regarding a separate law on NPLs suggested by the IFC specialist, Phan Duc Hieu, a standing member of the National Assembly Economic Committee, said building such a separate law would cost lots of time, therefore, efforts should go to amending the current Law on Credit Institutions.

Prof. Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), said he supported the IFC suggestion of opening the market to foreign investors to better explore international capital markets.

ANVI lawyer Truong Thanh Duc said he agreed with the IFC suggestion because Vietnam does not clean up NPLs, but simply hides them, while opening the market would be a real solution.

Dong from the IFC stressed that NPLs are also assets; therefore trading this type of asset is normal.

Pham Lien Anh, another executive from the institution, said building a separate NPL law is suggested for Vietnam alone because countries with a developed legal system do not need a separate NPL law.

Singapore-based Collectius, a debt restructuring partner for financial institutions across Southeast Asia, announced in July 2022 that it had acquired more than $800 million in NPLs from a Vietnam-based commercial bank. This was the firm’s first portfolio in Vietnam, but Collectius did not disclose the bank’s name.

The acquired NPLs were a joint acquisition by Collectius and IFC. The duo partnered in 2020 to launch a $60 million Distressed Asset Recovery Platform Program that focuses on acquisitions and resolutions across emerging markets. IFC is also a minority equity shareholder in Collectius.

Nguyen Quoc Hung, general secretary of the Vietnam Banks’ Association (VNBA), told the workshop that NPLs in Vietnam are already experiencing tough conditions because of the impacts of the Covid-19 pandemic and prolonged global economic headwinds, together with obstacles in the ailing Vietnamese property market.

The State Bank of Vietnam (SBV) estimated that the total NPLs on balance, unresolved debt sold to Vietnam Asset Management Company and potential NPLs in the country’s banking system made up about 5% of the total outstanding loans by the end of February.

Hung said the NPL size would become bigger in future. He suggested the government allows state-run commercial banks to increase their charter capital in the coming years by paying dividends in shares to improve their financial heath and increase risk provisions.

He argued that the SBV should carefully study the banking laws of other countries so that Vietnam’s amended Law on Credit Institutions (being drafted) can serve the country properly while remaining consistent with international practices.

Huynh Thanh Phong, head of risk management at Nam A Commercial Joint Stock Bank, said the government should expand the scope of NPLs needed to be solved. He said the expansion should cover Group-2 loans that must be collected prior to their terms to minimize risks.

The amended law, Phong said, should also specify NPL settlement measures and implementation procedures.

“It is necessary to provide further guidance on the implementation of measures to take in collateral assets to replace the debt repayment obligation or convert debts into contributed capital,” he said.

Pham Van Phong, deputy director of risk management at Military Bank, said Vietnam lacks guidance on NPL pricing, and that banks are assigned to fix this pricing on their own, but do not dare. In addition, such self-assessment of NPLs does not ensure correctness and is not in line with international practices and market standards.

He said there was a case in which a bank has tried to sell NPLs for up to 30 offering sessions but no customers showed interest.