Oct 22, 2012

Vietnam - Banking sector’s reputation shattered

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VietNamNet Bridge – The reputation of Vietnam’s banking system has been tarnished by the problems of rising bad debt, strained ties between banks and corporate borrowers and falling credit ratings, said Vietnam Report Joint Stock Co.

The company last Saturday released the regular report No. 3 and the 2012 report on the banking sector with the topic “Vietnam’s banking sector: falling prestige and tough reforms.”

According to these reports, local banks are struggling with a sudden increase in bad debt in the early months of 2012.

“As of end-June, bad debts had amounted to some VND256 trillion, 10% of the total outstanding loans in Vietnam’s banking system,” said a statement of Vietnam Report. Meanwhile, the central bank’s governor in a report delivered at the National Assembly sitting in August put the bad debt ratio at 8.6%, equivalent to VND202 trillion.

In previous years, the bad debt ratio was very low, at 2.5% in 2009, 2.1% in 2010 and 3.3% in 2011. More worryingly, official sources do not agree on the exact figure of bad debt, making it difficult to quickly solve this problem.

In addition, the reports described 2012 as a tough year for the banking sector. By the end of the second quarter, many lenders had only attained 20-30% of their profit targets for the whole year.

Even those having achieved 50% considered revising down their targets in July due to the unfavorable economic situation. Many banks recorded a year-on-year decline in profits in the year’s first half.

The relationship between banks and their corporate clients has turned sour, and even big enterprises have had trouble accessing bank credit.

According to a survey of Vietnam Report, 44% of the big firms stated they could not access bank loans as easily as in 2011. Meanwhile, 39% of the surveyed enterprises said they had borrowed more capital, but the borrowed funds accounted for at most 50% of their total capital.

State-owned enterprises were still favored by credit institutions. The survey respondents said State-owned enterprises received the biggest incentives from banks, followed by companies with high growth and those with hefty revenues.

The public is still worried about the reputation of banks and lending interest rates, said the respondents.

“This is a distress signal in the face of the determination to reform and create a fair business environment, irrespective of economic sectors,” said Vietnam Report.

Vietnam Report applied media analysis in making these reports, through coding and analyzing more than 4,300 articles on the banking sector published on Thoi bao Kinh te Vietnam, Dau Tu, Thoi bao Kinh te Saigon, Vietnam News and Vnexpress from January to August this year.

The analysis shows that the reputation of big banks, especially the State-run ones, is in decline.

In particular, three of the four State-run banks in the list of top five banks appeared on the newspapers with law violations at their branches, sky-high lending rates, mounting bad debts and business results not meeting the targets.

“Lending packages and other services were also covered frequently by the media, along with information about mergers and bond issuances. High lending rates of credit products, unsatisfactory business results and poor credit ratings in the international bond market were the topics about banks covered by local media,” said Vietnam Report.


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