Vietnam - Vietnam too slow in dealing with ailing banks: WB

In its updated report on economic situation in Southeast Asia- Pacific region released on May 23, the World Bank (WB) mentioned Vietnam's situation, including unresolved issues in Vietnam's banking sector that are still major concern for Vietnam in the coming years.

In early March 2012, the Vietnamese government issued a Decision No 254 on restructuring the entire banking system in 2011-2015 period, of which, the decision laid out some options in restructuring process such as the central bank will directly acquire stake of weak banks or encourage strong state-owned banks to acquire good quality assets and loans from weak banks, or increase the holding ratio of foreign banks in local banks.

However, it seems that this process is going too slowly compared with the initial goal that Governor expected to finalise dealing with weak banks in the first quarter of 2012, the report said.

Depark Mistra - WB's chief economist in Vietnam said that the central bank needs to accelerate the restructuring process of weak banks. This is considered a short-term challenge in terms of policy of Vietnam to maintain macroeconomic stability and restore confidence for investors.

In addition, the WB's report also stated that till the end of Apr/ 2012, credit growth of the whole banking system fell 0.66 percent from the end of 2011, which indicated that capital flows are facing "bottlenecks" in the banking system while enterprises are struggling to access bank loans to restore and maintain production.

Victoria Kwakwa - director of WB in Vietnam said negative credit growth is clear result of too tightening monetary policy. With the too low growth indexes, it is likely that the credit growth target of 15-17 percent for the entire banking system in 2012 set by the central bank will be very difficult to achieve.

Director of WB in Vietnam also pointed out three main reasons of Vietnam's negative credit.

Accordingly, first, the banks are now "discriminating" stronger for ailing businesses because they are afraid about the possibility of increasing bad debts.

Second, due to large inventories accumulation amidst decreasing purchasing power, the demand for loans of businesses is dramatically reducing. Last, the interest rates remain too high beyond the endurance of most businesses currently.

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