Vietnam's central bank says 8.82 percent of loans are bad, pledges action

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Non-performing loans in Vietnam's banking system reached 8.82 percent of total lending at the end of September and are difficult to deal with, the country's central bank governor said on Tuesday.

Nguyen Van Binh also told the parliament that non-performing loans rose 66 percent in the first 10 months this year, though he did not say whether that increase was from the same period of 2011 or from another timeframe. In televised remarks, Binh said that non-performing loans increased 64 percent in 2011 and 41 percent in 2010.

Vietnam has one of the highest levels of non-performing loans in Southeast Asia. Increasing levels of bad loans stem from years of very rapid credit growth intended to fuel economic expansion. Overlending for real estate and poor supervision of credit extension saddled the country with economic woes.

This year, a slowing economy and weak domestic consumption have exacerbated loan problems. The government has said that unsold industrial product inventory in October was 20.3 percent higher than a year earlier.

The percentage of loans that were non-performing at the end of September was only marginally above end-June's 8.80 percent. But the level was only 3.8 percent at the end of 2011.

"The bad debt issue could be resolved, but it is by no means easy," Binh said.

Lenders' reports showed the non-performing loans at 4.93 percent as of September 30, but several lenders, who had reported non-performing loans at 1-3 percent, have been found by inspectors to instead have far higher levels, Binh said.

Banks had restructured loans worth VND252 trillion, or around 8 percent of the nation's total lending of VND2,700 trillion (US$129.6 billion) by September 30 while they had made provisions worth VND75 trillion, he said.

Around 80 percent of the bad debts are mortgage-based, while 46 percent of all loans have real estate mortgages, he said, quoting reports submitted by Vietnamese commercial banks.

Binh, whose policies to restructure banks and to reinforce the state's monopoly in controlling gold brands have stirred controversy, pledged to ease bad-debt problems by stimulating home-buying packages and work with the ministries of finance, industry and planning to deal with related issues.

In September, Moody's Investors Service downgraded Vietnam to its lowest rating ever, citing a weak banking sector likely in need of "extraordinary support."

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