Vietnam will trim interest rates and has cut the level of bad debt in its banking system to 6 percent from 8.82 percent as part of measures to rescue its troubled lenders, a government official said on Thursday.
Another rate cut and action to tackle non-performing loans are the latest sign of Vietnam's moves to breathe life into an economy that has taken a turn for the worse after long being tipped to be Asia's next emerging market star.
Among those measures is the setting up an asset management firm to buy bad debt from banks, large portions of which were racked up by state-owned companies that mismanaged finances and invested in non-core sectors that slumped during the slowdown.
The asset firm is expected to start operations by the end of the first quarter.
"Even though the asset management company hasn't yet been established, the bad debt has fallen to 6 percent from more than 8 percent," Vu Duc Dam, head of the government office, told reporters.
"The government has required the central bank governor and ministries to resolutely deal with this."
Dam did not give a time frame for when the bad debt ratio had fallen.
Vietnam's weak banking system is seen as the source of much of its economic woes and was last year laden with one of the region's highest bad debt ratios.
Moody's downgraded Vietnam in September 2012 to its lowest rating ever, citing a need for "extraordinary support" for the banking system.
Central bank data last year showed 8.82 percent of loans had turned bad by September 2012, up sharply from 3.07 percent at the end of 2011. Ratings agency Fitch had previously estimated the non-performing loan figure to be around 13 percent.
Dam did not say when the interest rate cut would happen, or by how much it would be trimmed. The central bank cut the key policy rates six times in 2012 in an attempt to boost growth.
The government said on Feb. 22 it had approved a broad plan to boost its economy by focusing on restructuring public investment and its troubled state-owned enterprises while controlling inflation and maintaining growth.
The 29-page plan is scant on detail but broadly aims for a prudent monetary policy to tame inflation while ensuring "reasonable growth".
Annual inflation was 7.02 percent in February, far lower than the 23 percent recorded in August 2011, and growth fell to a 13-year low of 5.03 percent last year as consumer demand slumped and piled up inventory at many companies, prompting widespread bankruptcy and exacerbating banks' bad debt problems.
Those non-performing loans have been problematic for the broader economy, squeezing consumer spending and making borrowing difficult for small-and medium-sized firms, an estimated 100,000 of which went bankrupt or ceased operations in 2011 and 2012.
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