1. What is VAMC?

VAMC is a 100% State-owned company, established by the SBV in July 2013.

VAMC’s role is to take NPLs off the balance sheets of banks and in exchange the banks will receive special interest-free VAMC bonds with tenors of up to 5 years with a face value equal to the book value of the NPLs. These bonds, although interest-free, can be placed temporarily with the SBV for liquidity.

Banks, however, still have to make provisions for the VAMC bonds for 5 years and thus retain the economic costs of potential losses related to the NPLs. Banks may repurchase (repo) 70% of the net value of the VAMC bonds with the SBV for liquidity at a cost set at 2.0% below the current refinancing rate of the SBV. As far as we know, no repo transactions have occurred.

VAMC can also purchase NPLs at market value from banks. However, this has not happened because VAMC does yet not have the source of funding to do so.

In addition, unlike in some other countries, VAMC’s role does not include the recapitalisation of banks.

Since 2013, the creation of VAMC has improved liquidity at Vietnamese banks.

2. Are foreign investors allowed to participate?

One of the issues under the relevant NPL regulations has been whether and how foreign investors can participate?

The law has been unclear until the issuance of the new circular. However, rather than providing explicitly regarding the role of foreign investors, the circular simply adds one provision stating that ‘non-resident’ purchasers of NPLs from VAMC may use their foreign currency bank accounts opened at banks in Vietnam or their foreign currency bank accounts offshore to pay VAMC for the purchase of NPLs.

There is no other provision. Thus, it appears the foreign investors or ‘non-residents’ may purchase NPLs from VAMC. However, one major obstacle is that foreign investors are not allowed to take a mortgage of land and assets on land.

The new circular also adds details as to how NPLs can be sold by VAMC by way of an auction or via a competitive tender process.

We will keep you posted of any further new development.

Circular 14/2015/TT-NHNN dated 28 August 2015 of the SBV (valid 15 October 2015)

DNLegal, 3 September 2015