Vietnam says economy at great risk of macroeconomic instability

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Vietnam still faces "great risk" of macroeconomic instability, a deputy premier said, as credit growth trails behind targets while banks work to reduce elevated bad debt that has hampered growth.

While Vietnam is targeting a 12 percent expansion in credit this year, local businesses are facing difficulties getting loans, Deputy Prime Minister Nguyen Xuan Phuc told the National Assembly in Hanoi today. Credit grew about 2 percent in the first four months of the year, the government said last week.

The economy expanded 5.03 percent last year, the slowest pace since 1999, and the International Monetary Fund last month cut this year's forecast to 5.2 percent from 5.8 percent. Lending grew last year by what the World Bank described as an "anemic" 9 percent, and while the central bank has cut policy rates, its attempts to spur growth have been countered by delays in forming a vehicle to address bad debt.

"Vietnam's economy still has shortcomings and weaknesses," Phuc said.

Banks are reluctant to lend due to concern over bad debts, which Phuc said today was gauged by lenders to be 4.51 percent at the end of March. That compares with a central bank estimate of 7.8 percent at the end of last year. The government plans to ask lenders with bad-debt ratios greater than 3 percent to transfer non-performing loans to an asset management company, which was scheduled to be formed by the end of March.

"The restructuring of the banking system and the resolution of bad debts have been slow," said Nguyen Sinh Hung, chairman of the National Assembly. 

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