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Moody's: Vietnamese banks on track to write down bad loans

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Moody's: Vietnamese banks on track to write down bad loans

Vietnamese banks have made significant progress in resolving their legacy problem assets, a credit positive for the sector as it removes a drag on their profitability, Moody's said in a Feb. 5 outlook.

Asia Commercial Joint Stock Bank, in its full-year 2017 results, reported a full write-down of bonds issued by the Vietnam Asset Management Co., or VAMC. The bank joins a few other Vietnamese lenders that have made progress in the resolution of legacy problem. These lenders include Military Commercial Joint Stock Bank which successfully wrote down its VAMC bond exposures from its balance sheet in the fourth quarter of 2017. As such, the banks no longer have to set aside a 20% annual provision cost.

The VAMC is mandated to take over bad debt in Vietnamese banks and to manage recovery work. The company issues special bonds to take nonperforming loans off banks' balance sheets.

Moody's noted that asset quality at most Vietnamese banks have stabilized in 2017 driven by healthy macroeconomic conditions. Banks have also been allocating higher provisioning expenses to write off their VAMC bonds as their profitability increased. In addition, banks have benefited from enhanced legal frameworks such as Resolution 42 which allowed them to rapidly repossess collateral in the case of borrower default.

Moody's expects banks to make progress in resolving legacy problems in the next 12 to 18 months given the favorable macroeconomic environment. More banks are likely to fully write down their VAMC bond holdings by the end of 2018, the rating agency said.