Vietnam risks becoming the biggest East Asian economy to seek an
International Monetary Fund rescue loan since the region’s financial crisis
more than a decade ago as it moves to support a faltering banking system.
The nation may need IMF aid to
recapitalize banks and must act quickly to clean up bad debt or risk “prolonged
stagnation,” the National Assembly’s economic committee said in a Sept. 4
report published on its website yesterday. The financial system needs an
injection of 250 trillion dong ($12 billion) to 300 trillion dong, according to
the 298-page report that included recommendations to address economic risks.
Prime Minister Nguyen Tan Dung’s government
is struggling to regain confidence in Vietnam after the arrest of a banking
tycoon last month highlighted the frailty of a financial system hobbled by
Southeast Asia’s highest bad debt levels. Growth slowed to 4.4 percent in the
first half of this year from 8.5 percent in 2007 as lending stagnated, damping
state revenue and crimping the country’s ability to rescue banks.
“Vietnam got itself into this
mess and the government will have to take responsibility to solve this before
it worsens,” said Gareth Leather, an economist at Capital Economics Ltd. in
London. “Credit has been one of the main drivers of the economy and you’re not
going to see growth return to 7 percent to 8 percent so long as banks are stuck
with this problem.”
The benchmark VN Index (VNINDEX)
of stocks fell 1.4 percent today. The dong was little changed at 20,858 a
dollar. Shares of Asia Commercial Bank fell 1 percent to 19,500 dong.
Foreign Funding
“Vietnam is now at a point where
it really does have to explore ways of recapitalizing and restructuring the
foundation for its banking system,” said Peter Ryder, the Hanoi-based chief
executive of fund manager and property developer Indochina Capital. “However,
for the Vietnamese, particularly given their history of fierce independence, to
go to the IMF before exhausting all other alternatives would be very
surprising.”
Apart from the suggestion for
Vietnam to seek an IMF loan to restructure the banking system, the National
Assembly committee’s report also recommended other funding sources such as
selling government bonds with three-to-five-year maturities, trimming state
spending and drawing funds or investments from foreign companies.
Seeking foreign funding is
“unavoidable” in order for Vietnam to quickly solve its bad debt problem, the
report said. Funds from foreign companies would be one of several sources
accessed to help buy bad debt, it said.
‘Good’ Option
“I’d be very happy if I heard the
IMF was involved,” said Son Nam Nguyen, managing partner of Vietnam Capital
Partners Ltd. in Ho Chi Minh City. “There would be a whole set of conditions,
which would be very good for Vietnam.”
Vietnam’s non-performing loans
climbed to 4.47 percent of total lending as of May 31, from 3.07 percent at the
end of 2011, according to central bank data. State Bank of Vietnam Governor
Nguyen Van Binh said in April that the level of non-performing loans at some
lenders may be “much higher” than reported figures, with Mizuho Corporate Bank
Ltd. estimating as much as 20 percent of debts may be bad.
The central bank should set up a
company to buy bad debt using foreign funding, the parliamentary panel said in
this week’s report, which was funded by the United Nations Development
Programme. Cross-ownership of banks are at “alarming levels” and lending based
on relationships have led to rising non-performing loans and need to be
promptly dealt with, according to the report.
“The ratio of bad debt and
overdue debt in the banking system is at an alarming level,” while bank
provisioning for bad debt is inadequate, it said.
Not Imminent
The central bank hasn’t
officially been presented with the report by the National Assembly and the
recommendations are “just the committee’s view” for now, Nghiem Xuan Thanh,
chief administrator at the bank, said by phone today.
“We are not so desperate yet that
we would need an imminent rescue loan from the IMF,” Nguyen Duc Kien, deputy
head of the committee that published the report, said by phone today. “This is
just one of the recommendations to the government in case it’s needed.”
Asian stocks snapped a five-day
decline today as investors awaited details of a European Central Bank plan to
stem the region’s debt crisis.
ECB President Mario Draghi will
hold a press conference today where he may offer details of a bond-purchase
plan to lower borrowing costs in Spain and Italy. The event is scheduled to
follow the ECB’s decision on interest rates.
Obama Speaks
Spanish Prime Minister Mariano
Rajoy and German Chancellor Angela Merkel meet in Madrid today to discuss the
euro crisis, and the Bank of England announces its interest-rate decision and
target for asset purchases.
Germany reports factory orders
for July and Sweden’s central bank cut interest rates. The U.S. will report
initial jobless claims and President Barack Obama may outline his goals for the
economy as he gives an acceptance speech at the Democratic National Convention.
In the Asia-Pacific region,
Australia’s jobless rate unexpectedly declined in August and in South Korea the
central bank said the economy expanded 0.3 percent in the second quarter from
the previous three months, less than initially estimated.
Vietnam had recognized the risks
and unveiled plans to prevent a collapse of its banking system months ago. The
country said in March it would buy bad debt from lenders as the nation sought
to overhaul the industry and cut bad-debt ratios at state-owned banks to below
3 percent by 2015.
Forcing Mergers
The central bank has also said
it’s ready to force mergers among weak lenders, and Dung has ordered the
monetary authority to “solve” a shortage of funds after the credit crunch
forced thousands of companies out of business.
Restructuring the banking system
is necessary as lenders are “not truly strong,” Vu Duc Dam, chairman of the
government office, said at a briefing in Hanoi yesterday. Gross domestic
product growth could be as low as 5 percent this year, Dam said.
Vietnam’s state spending has
risen 19 percent this year as of Aug. 15, while income gained 1.7 percent, a
government statement showed yesterday. Government expenditure totaled 534
trillion dong, compared with income of 418.5 trillion dong.
Nguyen Duc Kien, who helped found
Asia Commercial Bank, Vietnam’s fourth-biggest lender by market value, was
arrested in August, and the central bank said police were investigating
violations at three companies managed by Kien after he allegedly “conducted
business illegally.” That was followed by the arrest of former Chief Executive
Officer Ly Xuan Hai by the police for alleged economic mismanagement.
Vietnam’s stocks plunged,
dragging the benchmark index into in a bear market on Aug. 27 on concern the
arrests may signal further instability in the nation’s financial system.
The country’s last IMF lending
program was a poverty reduction and growth facility of as much as $368 million
when it was announced in April 2001.
Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com
No comments:
Post a Comment