Vietnamese Prime Minister Nguyen Tan Dung has approved a regulation to set up a debt asset management company to address bad loans in the country's banking system, central bank Deputy Governor Le Minh Hung said today.
The asset management company will start operations in the second quarter, the central bank said separately in an e-mailed statement today. The government missed an earlier target for its formation at the end of March.
The asset management company is aimed at reviving sluggish credit extension, which underpinned the slowdown of the nation's growth rate last year to the lowest since 1999. The reluctance of banks to lend may result in economic growth of less than 6 percent for a third straight year, based on forecasts from the International Monetary Fund and the World Bank.
"They have to do more on the bank restructuring side," said Johanna Chua, head of emerging Asia economics at Citigroup Inc. in Hong Kong. "The fastest way to address the problems of the banks would be a direct capital injection from the government, but they seem to be resistant to that."
The asset management company would be wholly state-owned, with initial charter capital funds provided by the State Bank of Vietnam, according to the central bank statement. Investors could bid at auctions on the bad debt, and special bonds would be issued to lenders in exchange for the non-performing loans, according to the statement.
Non-performing loans reported by commercial banks stood at 4.51 percent at the end of March, according to the government this week. That compares with a central bank estimate of 7.8 percent at the end of last year.
Credit grew about 2 percent in the first four months of the year, the government said last week. Market participants and credit rating companies estimate bad debt at Vietnamese banks may be between 10 percent and 20 percent, according to JPMorgan Chase & Co.
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