Credit institutions selling their debts for special bonds would be disallowed to pay cash dividends to their shareholders.
This is highlighted in the draft circular prepared by the State Bank of Vietnam (SBV) to replace Circular 19 of 2013 on the purchase, sale and handling of non-performing loans by the Vietnam Asset Management Corporation (VAMC).
|Customers conduct transactions at VPBank Hanoi__Photo: VNA
The regulation aims to improve banks’ financial capacity and create sources for handling of non-performing loans until special bonds are repaid.
According to the drafting board, such regulation aims to speed up the handling of bad debts and control the dividend payment of credit institutions that sell non-performing loans to the VAMC and receive special bonds.
Commenting on the SBV’s proposal, Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam said the new regulation was appropriate as “credit institutions need to prioritize the handling of bad debts before paying dividends.”
The draft also provides specific conditions on a non-performing loan to be purchased with special bonds by the VAMC.
Accordingly, the loan and its collateral must be lawful, have valid dossiers and papers and satisfies two requirements. Firstly, the credit contract, entrustment contract, corporate bond purchase contract or guarantee contract must clearly indicate the creditor’s rights of the credit institution and responsibilities and debt repayment obligations the borrower, guarantor and the party obliged to repay the loan. Secondly, the loan is not yet used to secure the fulfillment of obligations of the credit institution and there is no dispute over its collateral at the time of loan purchase and sale.- (VLLF)