Vietnam orders public list of weak banks as bad debts mount

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Vietnam's Prime Minister Nguyen Tan Dung ordered a public list of weak banks and details of lenders' non-performing loans as the government seeks to tackle bad debt that's undermining the banking system and hurting businesses.

The central bank is drafting detailed measures to check bad debt, Nguyen Thi Hong, head of monetary policy at the State Bank of Vietnam, said at a briefing in Hanoi on July 31. The monetary authority needs to "quickly restructure banks' debt, reduce bad debt by comprehensive measures and restructure weak banks" to minimize any potential risks to the system, according to the order posted on the government website yesterday.

Vietnam has struggled with stagnant lending and high inflation that has crimped corporate growth and domestic demand. The monetary authority has cut interest rates for five straight months this year and ordered lenders to reduce rates on loans to companies, while the government has pledged to speed up restructuring of weak commercial lenders and non-performing loans. Bad debts rose to 4.47 percent of total lending as of May 31 from 3.07 percent at end-2011, according to the central bank.

"The high bad-debt ratio at banks is a worrying problem," Nguyen Duc Hai, Ho Chi Minh City-based portfolio manager at Manulife Asset Management, said by phone on July 30. "Rising bad debt has become a large burden on banks and hindered them from giving more loans."

The benchmark VN Index on the Ho Chi Minh City Stock Exchange slipped 0.4 percent as of 10:35 a.m. local time. Bank stocks fell, with Joint-Stock Commercial Bank for Foreign Trade of Vietnam, the nation's largest-listed company and second- biggest listed lender by market cap, sliding 1.4 percent, and Saigon-Hanoi Commercial Joint-Stock Bank losing as much as 2.3 percent. The dong eased 0.1 percent to 20,880 against the dollar.

Significantly understated


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State Bank of Vietnam Governor Nguyen Van Binh said in April bad debt may be "much higher" than the reported figures at some banks. Bad debt continues to be on an "uptrend," Vu Duc Dam, chairman of the government office, said on July 31.

Vietnam's government said earlier this year it may establish a company to buy bad debt from banks to strengthen their balance sheets and enable them to step up lending. The aim is to cut the bad-debt ratio at state-owned banks to below 3 percent by 2015, according to the March 2 statement.

Non-performing loans are "significantly understated" and could be three or four times higher than the official estimates, Fitch Ratings said in a March report.

Vietnam's lending grew 0.93 percent at the end of July, compared to the end of 2011, the government said in a release at yesterday's briefing. Consumer prices may fall in August compared to July on lower food and fuel prices, Dam said.

Loan demand

While easing inflation has given the central bank room to cut interest rates, lenders have faced lower demand for loans as the economy grew 4.66 percent in the three months to June from a year earlier. Deputy Prime Minister Vu Van Ninh has said full-year expansion may fall below the government's 6 percent target.

More than 30,300 companies closed permanently or suspended operations in the first seven months of the year, up 6.4 percent from a year earlier, according to a statement on the government website on July 31. A purchasing managers' index for Vietnam fell to 43.6 last month from 46.6 in June, HSBC Holdings Plc and Markit Economics said today. A number above 50 indicates growth.

The central bank has said it aims to boost lending growth to as much as 10 percent in the second half of the year from 0.76 percent in the first six months.

Dong deposit rates at commercial lenders could drop to below 8 percent if inflation eases to less than 7 percent at year-end, Binh said July 29, even as the monetary authority has resisted calls from businesses to cut borrowing costs further.

Rates on some preferential loans may drop to below 10 percent in 2013 if deposit rates fall, Binh said.

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