It will take a long time to reduce non-performing loans in Vietnam because the problem has taken root over several years, said the International Monetary Fund, once again urging banking reform.
"The experience of many other countries coping with similar problems shows that the imbalance of the balance sheets that we have seen now is because people borrowed too much in the past," said Sanjay Kalra, the IMF's resident representative in Vietnam.
"What is required in the current situation, first of all, we need to reform the banking sector, we need to decide what is to be done and to handle the problem of non-performing loans," Kalra said in an interview published on the central bank's website Friday.
Vietnam's bad debts had risen to 8.6 percent of total loans in the banking system by the end of March.
Credit growth stayed at levels that economists said were dangerously high for several years, before easing to 10.9 percent last year. In 2010 loans expanded 27.65 percent and the growth was nearly 37.7 percent the year before.
"Because these problems have accumulated for many years, it will take some time to solve the problems. But the decisions have to be taken quickly and actions should be taken quickly; the results of these decisions and actions need time to be seen clearly," Kalra said.
Vietnam's central bank said it plans "to deal" with all weak banks this year, encouraging small lenders to merge voluntarily.
The bank is trying to move forward with initiatives to restructure and reform banks.
Two M&A deals have taken place over the past eight months as part of restructuring efforts.
Kalra warned that reform can be an "uneasy" process. "When these problems are being resolved, growth will be a little bit low for a certain period of time."
Experts have said Vietnam's economic growth may drop to around 5 percent this year.
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