The banking sector bad debt situation could be worse than expected.
The recent 2012 Vietnam economy annual report by the Hanoi National University’s Vietnam Centre for Economics and Policy Research (VEPR), shows that the entire banking sector’s bad debts might amount to 14 per cent of total outstanding loans, six-fold more than the central bank’s regulated 2.3 per cent.
The report put the system’s bad debts at a minimum 8.25 per cent of total outstanding loans and a maximum 14 per cent, translating into VND83,127 billion ($3.95 billion) and VND141,100 billion ($6.7 billion), respectively.
“Lending to securities and property climbed to VND108,760 billion ($5.17 billion) in 2011. Since these markets were halved in value in the past year, loans to these areas might turn into bad debts. From a more positive angle, if only half of these loans were bad debts, these debts came to VND54,760 billion ($2.6 billion),” said report author Nguyen Duc Thanh.
“What we have witnessed in 2012 was the inevitable corollary of loosened monetary policies and open fiscal policies from previous years as well as excessively tightened fiscal and monetary policies in 2011. This is a huge roadblock to on-going banking sector, state-owned enterprise and public investment restructuring,” Thanh asserted.
But, Central Institute for Economic Research and Management deputy director Nguyen Dinh Cung assumed 2012’s economic woes did not stem from Resolution 11/NQ-CP to curb inflation and ensure macroeconomic stability.
“From another approach, if Resolution 11 with series of measures to tighten fiscal and monetary policies was not introduced inflation may have surpassed 18.13 per cent per year in 2011 and the economy might have fallen into recession and bank lending rates might not be lower than 2011’s average,” said Cung.
Cung, however, admitted local banking sector was in a pickle due to state management agencies’ poor supervision capacity and banks racing to boost deposit and lending at rates beyond the endurance of the economy.
“The banking sector and the economy’s current woes did not derive from implementing Resolution 11’s tightened policies, but handling the resolution had made weaknesses and shortcomings get exposed more quickly and apparently,” Cung said.
By Manh Bon