Bad debts falling in Vietnam's ailing banks, gov't says

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The ratio of non-performing loans held by Vietnam's troubled banks eased slightly in the first quarter as they have become better at controlling bad debt, though the overall level of NPLs remained high, the government said on Monday.

Bad loans are a key factor stifling Vietnam's economic revival. The country's banks are saddled with what is widely regarded as Asia's highest ratio of bad debt, largely due to funding state-owned firms and a frozen real estate market.

By the end of March, NPLs accounted for 4.51 percent of the total loans according to information declared by the banks themselves, the government said in a report delivered to parliament on Monday.

The central bank plans to set up a company, the Vietnam Asset Management Corp (VAMC), to buy up NPLs in real estate, in return for special bonds intended to boost slow credit growth.

Many investors and economists see the VAMC as a test of the government's commitment to the economic reforms it promised as part of a masterplan approved in February.

Banks estimated their bad debt at 4.93 percent of loans as of September 2012, when the central bank put the ratio it gathered independently at 8.82 percent.

"We haven't seen much improvement in the system, while the smaller figure could be just a result of polishing books," said a Vietnamese economist who declined to be identified, adding that most local experts believed the reported ratio was only half the real level of bad debt in the system.

The State Bank of Vietnam, estimated bad debt in February stood at $7.8 billion, or 6 percent, of total outstanding loans of $130 billion.

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Central bank deputy governor Dang Thanh Binh last month told Reuters the VAMC would be capitalized at $24 million to deal with the bad debt, a figure economists said was too small.

Expectations that the VAMC would soon start operations helped lift sentiment among investors in the stock market on Monday. The VN Index closed up 0.96 percent at 492.27 points on Monday, led by banks and property stocks.

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