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Vietnam's central bank drafting new rules to spur bad debt settlement

Vietnam's central bank is drafting new rules on credit institutions' trading and handling of nonperforming loans in a bid to prompt them to settle bad debt, Viet Nam News reported March 25.

Under the draft measures, private credit institutions that hold special bonds issued by the Vietnam Asset Management Co., or VAMC, will be prohibited from paying out dividends in cash. The funds must instead be used to handle bad debt and improve the credit institutions' finance status.

Many of Vietnam's credit institutions sold their NPLs to VAMC for special bonds in order to lower their NPLs to below 3% of their total outstanding loans, as required by the central bank, the report said.

The draft regulations also have conditions for bad loans to qualify to be purchased by VAMC with special bonds.

The new measures will not apply to state-owned commercial banks as lenders in which the state holds a stake of more than 51% of the charter capital still need to obtain approval from the central bank and Ministry of Finance to pay out dividends.

The State Bank of Vietnam will focus on bad debt settlement to reduce the NPL ratio of the country's banking system to below 5% by the end of 2019 from 6.6% at the end of 2018, the report added.