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Rise in bad bank debt exposes economy

Bad debts in Viet Nam’s commercial banking system rose to over 3 per cent of total outstanding loans on July 31, up from just over 2 per cent last year, the State Bank of Viet Nam announced in a report released yesterday.

However, the rate remains acceptable and under control, the central bank said, adding that bad debts could rise to as high as 5 per cent of total outstanding loans in a worst-case scenario.

Credit growth, or total outstanding loans, increased by 8.85 per cent in the first eight months of the year, the central bank said, well below its target of 15-18 per cent for the entire year.

Loans to businesses in manufacturing and other production sectors rose by nearly 14.8 per cent during the period, while loans in non-production sectors such as securities investment or real estate development declined by nearly 17 per cent from the same period in 2010.

Borrowers in the production sector enjoying long relationships with particular lenders were enjoying interest rates of 17-19 per cent per year, while rates for other sectors as high as 24 per cent per year, adding pressures to default.

“Mounting bad debt will be seen in the last quarter of this year because companies are exhausted from paying high interest costs,” said a member of the National Consulting Council for Monetary Policy who asked to remain anonymous.

In a workshop with the World Bank in June, the council’s vice chairman, Le Xuan Nghia, said that bad debts were a major concern because a large part of banks’ capital had been lent to inefficient State-run enterprises.

An increasing rate of loan defaults could pose risks for the economy as a whole in the coming months, Nghia warned.Bad debts in Viet Nam’s commercial banking system rose to over 3 per cent of total outstanding loans on July 31, up from just over 2 per cent last year, the State Bank of Viet Nam announced in a report released yesterday.

However, the rate remains acceptable and under control, the central bank said, adding that bad debts could rise to as high as 5 per cent of total outstanding loans in a worst-case scenario.

Credit growth, or total outstanding loans, increased by 8.85 per cent in the first eight months of the year, the central bank said, well below its target of 15-18 per cent for the entire year.

Loans to businesses in manufacturing and other production sectors rose by nearly 14.8 per cent during the period, while loans in non-production sectors such as securities investment or real estate development declined by nearly 17 per cent from the same period in 2010.

Borrowers in the production sector enjoying long relationships with particular lenders were enjoying interest rates of 17-19 per cent per year, while rates for other sectors as high as 24 per cent per year, adding pressures to default.

“Mounting bad debt will be seen in the last quarter of this year because companies are exhausted from paying high interest costs,” said a member of the National Consulting Council for Monetary Policy who asked to remain anonymous.

In a workshop with the World Bank in June, the council’s vice chairman, Le Xuan Nghia, said that bad debts were a major concern because a large part of banks’ capital had been lent to inefficient State-run enterprises.

An increasing rate of loan defaults could pose risks for the economy as a whole in the coming months, Nghia warned.

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