The government has allowed the Vietnam Asset Management Company (VAMC) to buy bad debts with market prices in the primary market. However, the doors remain closed to the cash flow to the secondary market.

Circular No 14 dated August 28, 2015 is believed to give more power to VAMC to buy bad debts from banks and settle them with the company’s charter capital, raised from VND500 billion to VND2 trillion. It also allows VAMC to buy debts at the market prices.

However, analysts noted that the circular does not mention the legal framework for the cash flow to enter the secondary market, where debts collected by VAMC from credit institutions can be traded.

Meanwhile, the secondary market plays a very important role in debt settlement. If a secondary market does not exist, the ‘debt store’ will never be ‘freed’.

Under current laws, foreign investors still cannot join the Vietnamese debt trading market despite the release of the new circular.

To allow foreign institutions to join the debt trading market, Vietnam needs to release legal documents that guide the implementation of the Investment Law, while foreign institutions need to have their operation licenses amended by the local planning and investment departments where they registered their business.

To date, no foreign institution has had licenses amended.

Analysts said that they don’t think foreign investors would ‘queue up to buy Vietnamese bad debts’ as people predicted. There are not many foreign institutions interested in Vietnam’s bad debts, while real debt traders would only accept to buy debts at prices equal to 15-20 percent of the book value instead of 30-50 percent, as expected by some domestic institutions.

As foreign cash still cannot flow into the domestic debt market, Vietnam would have to rely on domestic resources to settle bad debts.

However, currently valid legal documents still do not allow private investors to trade bad debts. Even banks’ debtors cannot buy back their own bad debts from banks and VAMC.

Under current laws, trading bad debts is a conditional business. Only some subjects are allowed to trade bad debts, including the Debt and Asset Trading Company (DATC), a unit belonging to the Ministry of Finance, VAMC and nearly 20 asset management companies (AMC) put under control by credit institutions.

A lawyer said it was still very difficult to sell assets which are collateral for loans in the market. To date, the sale of the assets has been done through intermediate parties – the courts or enforcement agencies. The complicated procedures have slowed down the sale of mortgaged assets and have made it impossible to settle debts.