These institutions focus mostly on settling their own debt and do not engage much in trading, so the overall process is slow and long in Vietnam, said Dr. Can Van Luc, Chief Economist at BIDV, Vietnam’s biggest state-owned bank, at a conference Friday.

The country currently only allows two state-owned firms to trade debt: the Vietnam Asset Management Company (VAMC), and the Vietnam Debt and Asset Trading Corporation (DATC); in addition to banks.

Vietnam  should open up its debt market to a diverse range of investors as they do in other countries like the U.S., South Korea, China, and Thailand, where the market includes a diverse range of players ranging from investment banks, investment funds, insurance companies, and pension funds to individual investors and professional valuation companies, he said.

Vietnam’s market, on the other hand, lacks brokers, professional consultants, and independent asset valuators such as insurance or securities companies. Debt trading is not overseen by reputable credit rating agencies, and there is virtually no secondary market or market for derivatives, Luc said.

The country should also establish a new national credit rating company, because banks are facing a lot of difficulties valuing their assets. While it has around 10 valuation companies, including one under the Ministry of Finance, they do not operate with complete independence and their capabilities are limited, the BIDV chief economist said.

"There are cases where BIDV has auctioned assets six times but still cannot find a buyer, because the valuator had determined a starting price that was not suitable for the market. We had to decrease the starting price of the asset gradually with each auction, because regulations only allow an adjustment of 5-10 percent each time," Luc said.

Corporate valuation has been the biggest obstacle to the equitization of state-owned Agribank, which plans to launch its initial public offering (IPO) in 2020, he added.

Agribank is the last of Vietnam’s four state-owned banks to equitize, with Vietcombank, BIDV and Vietinbank having undergone the process. The state continues to hold majority stakes in all the banks.

Other experts at the conference also proposed that Vietnam should enact a new set of laws on debt trading, because current regulations are piecemeal and not comprehensive.

For years, the only debt-trading activity in Vietnam was between the commercial banks and VAMC, which is a state-owned buyer of bad debts.

VAMC takes bad debts off bank’s books in exchange for special government bonds or cash, to save the banks from falling below liquidity ratios, and the banks are obliged to buy back any bad debt VAMC fails to collect after a period of five years.

In 2018, VAMC had bought 761 bad debts from 13 credit institutions with special bonds for VND29.81 trillion ($1.28 billion). The original value of these debts was VND30.91 trillion ($1.32 billion). It also bought another VND2.8 trillion of bad debts with cash.