Vietnam may start buying bad debt in Q1

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Vietnam may start buying non-performing loans in the first quarter of this year, a state-run newspaper reported on Monday, as deteriorating asset quality threatens to further strain the economy.

The government is likely to establish a national asset management company this month to deal with the debts, the Planning and Investment Ministry-run Dau Tu newspaper quoted a National Financial Supervisory Commission official as saying.

The government has asked the central bank to submit a plan on the firm's establishment and will require the Ministry of Justice to amend regulations on dealing with mortgage-based assets, the newspaper said.

Non-performing loans accounted for 8.82 percent of the banking system's total loans at end-September, up from 3.07 percent at the end of 2011, the central bank has said.

Vietnam's increasing levels of bad loans stem from years of rapid credit growth to fuel economic expansion coupled with overlending to the real estate sector.

Loans were worth VND2,900 trillion ($139 billion) at the end of last September, based on government data, suggesting that bad debt was around $12 billion. But analysts said the actual figure was much higher.

The central bank will deal with the non-performing loans at banks while the Finance Ministry will be in charge of state-owned enterprises' debts, the newspaper said, without giving further details of how the asset management firm would operate.

Lending growth in Vietnam slowed to 8.91 percent last year from 10.9 percent in 2011 as businesses could not access loans due to their unsold inventory and existing debts ,while lenders tightened lending rules for fear of further non-performing loans.

The government aims to cut the banking system's non-performing loans to 3-4 percent of total lending by the end of 2015, Prime Minister Nguyen Tan Dung has said.

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