Banking on a better future

The last two years have been very tough for Vietnam’s economy. However, the government has had numerous measures to stabilise the economy, control inflation, reduce interest rates and enhance exports. Is it too optimistic to say the tough time has passed?

I do not think the tough time has passed. But, we can say it is passing. The macroeconomy is getting better, inflation is lower, the local currency is stable, all of those things are very positive.

However, to get the macroeconomy growing at its full potential, the country needs to undertake the restructuring programmes which the government has correctly identified in three primary areas: public investment, state-owned enterprises and the banking sector. I think the encouraging thing is in 2013, the government continues to focus on maintaining macroeconomic stability, in addition to its commitment to restructuring.

How effective will the government’s policy measures be in terms of recovering the national economy and which sector will recover most in 2013?

I think measures taken to stabilise the macroeconomy in 2012-2013 worked well. In terms of restructuring, a positive development is that the government is talking about the establishment of an Asset Management Company (AMC) to help resolve banking system non-performing loans (NPLs).

In terms of sectors, the key thing Vietnam has is cost competitiveness. Vietnam’s exports increased 18 per cent last year - better than regional peers like Indonesia, Malaysia and Thailand. I think it is very clear that cost competitiveness is Vietnam’s advantage. Everything should be done to preserve that advantage with a background of macroeconomic stability.

What is your prediction about the macroeconomy in 2013?

2013 will be a better year than 2012. Our forecast for Vietnam is interest rates being stable, which means they will be lower than almost any time in 2012.  We think gross domestic product (GDP) growth will be 5.5 per cent, inflation 7 per cent, and the fiscal deficit is manageable at 4.5-4.7 per cent of GDP. What we need to see is the restructuring reform to make the economy improve its potential.

What is the foundation for Vietnamese enterprises to overcome their current difficulties and develop their businesses in 2013?

In the current environment, it is important for Vietnamese enterprises to look at their current operations and be quite defensive with their balance sheet, even if they can be more ambitious with their profit and loss. First, companies should remain liquid - most important. Second, if they have a good strategy, and good product, then now is the time to focus on that. Diversification is risky right now. And companies should tightly control their costs.

Local banks saw their income from credit activities, the main stream of income, sharply drop last year, due to low credit growth and NPLs. How about your bank?

I can say 2012 was another year of growth for Standard Chartered Bank in Vietnam. We focused on our strategy, on being careful about the credit we extend. We know our customers very well, we lend on the basis of cash flow, not on the basis of collateral. We ensure our loan portfolio is in good shape.

The State Bank’s Circular 02/2013/TT-NHNN, effective from June this year, stipulates stricter requirements on NPL classification and loan loss provisions. How will this circular affect the banking system and your bank?

In terms of how it will affect the banking system, I do not know the individual balance sheet of each bank. We are supportive of a loan loss provision in the system, not only quantitative but also qualitative, to make banks more active in dealing with NPLs. It will give investors, owners and managers of banks much better understanding of the risk in their portfolios. For our bank, we already provide our loans on the basis of Basel III. We classify loans not only quantitatively, but also qualitatively.

What do you think about the establishment of an AMC to resolve banking system NPLs? Is the issuance of bonds a good way to draw attention of foreign investors to buy NPLs at local banks?

It remains to be seen how it will operate. I encourage transparency as soon as possible. The transparency of where the money comes from is very critical. Whether the money is printed or bonds are issued to raise money is important for the money supply and for the value of the currency and government bonds.  If the AMC can establish a predictable and clear resolution mechanism for NPLs handling, it might get foreign investors interested in buying bad debts in Vietnam. Until that mechanism is proven, it looks likely that the state will fund this AMC.