Debt market is ready to come into vogue

According to the Resolution 02/NQ-CP dated January 1, 2013, the State Bank must submit to the government a plan for the organisation and operation of a national Asset Management Company (AMC) in January 2013.

The government also directed the Ministry of Justice to issue an inter-ministerial circular about resolving collaterals, helping credit institutions to recover debts and collect back assets quickly.

The non-performing loan (NPL) settlement process is moving slowly as the volume of cases has overloaded the court that also struggles with an inadequate legal framework. Collaterals collected on these loans have sold slowly.

Based on Resolution 02, the Ministry of Finance (MoF) also had to coordinate with the State Bank to issue and amend regulations to create a legal framework for development of the debt market as well as the capital market, especially bond market, and also handle debts of state-owned enterprises.

Although there have not been clear details about the operation and organisation of the AMC, some observers believe that a probable mechanism would be for the banks to sell debts to this AMC in exchange for bonds, bills or certificates of debts. Those valuable papers could be used to get funds from the State Bank at low discount rate and banks could receive 30-50 per cent value of the papers.

Vo Tri Thanh, deputy head of the Central Institute for Economic Management (CIEM), said that issuing bonds to buy debts could help the banks’ balance sheet better while banks could operate normally.

Chui Sum Lee, executive director of PwC Malaysia, said there were some positive effects of an AMC set-up, including increase in foreign investment if NPLs were to be sold to foreign investors.

Debt recovery skills could be transferred via a joint venture with investors who would provide expertise and opportunity to consolidate, strengthen selected industry sectors using debt as the entry point.

“However, it is not easy to make a debt become attractive to investors, based on the NPL settlement experience of Danaharta, a national AMC owned by the Malaysia government.”

Lee said that NPLs could be made attractive by a number of credit enhancements such as loans that are guaranteed by credible institutions. “It can be guaranteed by the MoF, or by agencies under the MoF, whoever subscribes to the bonds they want to be sure that they can get back the investment plus return on the bond. The second one is a good asset manager who knows what is going on and can recover the loan quickly,” said Lee.

According to Louis Taylor, general director of Standard Chartered Bank Vietnam, the AMC needed the management combination of both local managers and international experts, and they needed to be given power to take decision on how to settle and then execute decision very quickly.

“The speed of the resolution is demonstrated and then the private section would come in and invest in NPLs,” said Louis.