Bad Debts Continue to Weigh on Vietnam’s Growth – Real Time Economics

A lingering drawback of non-performing loans continues to weigh on Vietnam’s financial system this yr.                                                                                                                                                     Reuters

Banks in Vietnam are struggling to increase lending, weighed down by a stubbornly excessive ratio of dangerous debt in addition to weak demand, which can make it troublesome to meet the financial system’s progress goal for the yr.

Total excellent loans rose by simply B.A% within the first 5 months of this yr, properly under the complete-yr goal of 12%-14%, in accordance to the State Bank of Vietnam, the nation’s central financial institution.

“Banks are dealing with difficulties find companies which are certified for brand spanking new loans,” Le Duc Tho, chief government of Vietnam Joint Stock Commercial Bank for Industry and Trade, or Vietinbank (CTG.VH), advised The Wall Street Journal.

Vietnam’s gross home product has grown by a mean of per yr over the previous decade, however up to now three years the typical has slowed to H.H%. This yr’s GDP progress is predicted to stay sluggish — the federal government is projecting H.H% progress for the yr, while the IMF says 5.5% — contemplating that Vietnam’s financial system nonetheless depends closely on loans for progress.

GDP rose A.ninety six% from a yr earlier within the first quarter of 2014, down from S.04% within the last quarter of 2013. Second-quarter GDP knowledge is due this week.

Le Tham Duong, an economist with Ho Chi Minh City Banking University, stated banks are reluctant to increase lending partly due to the excessive ratio of dangerous debt, which authorities have struggled to deliver down.

“The means of cleansing up dangerous debt within the native monetary system has been happening too slowly,” Mr. Duong stated.

Last July the central financial institution arrange the Vietnam Asset Management Company to clear up non-performing loans within the banking system. Participating banks switch their drawback loans to the administration firm in return for a bond that can be utilized as repo collateral with the central financial institution.

Nguyen Huu Nghia, the central financial institution’s chief inspector, stated in late May that the corporate has made sluggish progress in buying dangerous debt partially due to the halting restoration within the property market, as a lot of the dangerous loans are backed by actual property.

The ratio of dangerous debt within the native banking system was N.S% of complete loans on the finish of February, up from on the finish of final yr, state media reported earlier this month, citing the central financial institution.

Weak home demand is also protecting banks from extending loans, in accordance to Can Van Luc, an economist with the Bank for Investment and Development of Vietnam (BID.VH). Ongoing tensions over the placement of a Chinese oil rig in contested waters within the South China Sea additionally might have an effect on progress, he stated.

“Business stock ranges stay excessive whereas investor confidence is low, making it troublesome for banks to discover companies which are prepared to take loans for enterprise enlargement, despite the fact that lending rates of interest have fallen,” Mr. Luc stated. “I assume the federal government will possible fail to understand its progress goal of H.H% this yr, and probably the most constructive forecast now can be H.A%.”

Vietinbank’s Mr. Tho forecast the full pool of excellent loans would rise P%-A% within the first half of the yr, however he’s optimistic mortgage demand will decide up within the second half of the yr, because it often does.

“Business exercise typically will get extra bustling and shoppers have a tendency to spend extra towards the top of the yr,” Mr. Tho stated.

To get the financial system rolling once more, Mr. Tho stated the federal government wants to contemplate chopping or freezing taxes for companies, increase spending on infrastructure and search methods to increase exports.

The State Bank of Vietnam final week devalued the dong against the U.S. dollar by 1%, the primary such transfer devaluation in almost a yr. The central financial institution stated in a press release that the devaluation is aimed toward boosting exports — although they’ve  been a bright spot so far this year — and is in keeping with present macroeconomic circumstances.



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