Vietnam's ratio of bad debt, one of the region's highest, has risen from the end of last year due to a slow economic recovery and tighter lending standard for small businesses, according to a central bank report to parliament.
Non-performing loans (NPLs) at the end of July accounted for 4.11 percent of total loans, up half a percentage point from the end of last year, State Bank of Vietnam (SBV) Governor Nguyen Van Binh said in a document sent to the legislature.
The introduction of higher standards in small business lending resulted in many loans being reclassified as bad debt.
Details from the note were carried on the state-run news website VnEconomy (www.vneconomy.vn) on Thursday. Reuters was unable to verify the contents.
Toxic loans among Vietnam's dozens of banks has hurt the property market and led to a tightening of credit needed to boost flagging consumer spending and keep businesses afloat.
Nearly 60,000 mostly small- and medium-sized firms have either declared bankruptcy or ceased operating this year alone, according to official data.
Many either do not qualify for loans needed to salvage their businesses or are put off by prohibitively high interest rates. Credit growth from the end of 2013 to the end of August was just 4.5 percent, far short of the SBV's 12-14 percent annual target.
Binh attributed the rise in NPLs to slow recovery in the macro economy, difficulties among small businesses and stricter lending, VnEconomy said, citing the SBV document.
Many economists believe Vietnam is understating the scale of the NPL problem and have suggested it could be two or three times higher than the official figures. Some have been sceptical about the SBV's measures to resolve it and say the stubborn debt will continue to weigh on growth.
The SBV set up an asset management firm last year to buy bad debt, but critics say that step and measures taken to restructure banks, including new regulations this year to allow slightly larger foreign shareholding, have seen only limited progress.
Though ratings agency Moody's upgraded Vietnam's credit rating to B1 with a stable outlook in July, due mainly to wider improvements in the exports-led economy, it said the country's lenders were not out of the woods yet.
"Capital levels in the banking system remain inadequate, especially in the context of the continued weakness in asset quality," it said last month, adding that state-run firms, which account for many NPLs, could threaten the "improving health of the banking system".