Bad debts much higher than SBV’s estimates, Thanh says

“The State Bank of Vietnam has reported bad debts to date at 75 trillion dong, but I think this number is questionable because in fact, the bad debts at the banking system may be much higher,” Nguyen Ba Thanh, chair of Da Nang City People’s Committee and deputy of National Assembly (NA) said at a NA meeting on Oct. 27.
According to Thanh, after Conclusion 02 of the Politburo Bureau and Resolution 11 of the government along with the implementation by ministries and localities, the country’s economic situation is feeling better, but there are still many issues of concerns in which the inflation rate remains high, the local currency devaluates, trade deficit increases and the like are constant worries.

The main cause of this situation, according to participants of the meeting, is located in monetary policy and fiscal policy loosened previously and the structure of the economy itself was even more unreasonable as the government put more cash in circulation, while goods were less, leading to high inflation.

In particular, the State Bank of Vietnam introduced a series of newly-established banks and upgraded dozens of rural banks, bringing the total to nearly one hundred banks, while state management proved weakness, which has led to loss of control.

“As far as I have known, some banks were established with a chartered capital of only about one trillion dong, but they raised an additional 10 trillion dong, and then silently withdrew their own money, took the mobilised capital of 10 trillion dong to invest in real estate. Unfortunately, when land prices dropped dramatically, the loans (the capital was mobilised from people) fell due, they did not have the money paid back to depositors, and they had to race to push deposit interest rates up to 18%, 20%, even 25%, 30% per year to raise more money from other depositors to pay the previous depositors, which has pushed inflation up,” Thanh said.

Even some banks “held” lots of their own land and also even pieces of land as borrowers’ collateral, while the housing market was frozen, so as they could not sell the properties, then bad debts increased.

“The SBV has reported bad debts at 75 trillion dong, but I think in fact, this figure may be bigger. It is noteworthy mentioning that of this bad debt amount, approximately 50% are in group 5’s bad debts (uncollectible), “Thanh said.

Moreover, in a long time, along with a too expanding banking system, the economy has fallen into a vicious circle because if loosening the monetary policy, inflation will increase, while if tightening up the monetary policy, bad debts will surge, purchasing power will decline, ‘black’ (illegal) credit will grow and the subsequent disruption is the threat of collapses of the banking system and economy.

Thus, according to deputies of the NA meeting, the government needs to soon reform the banking system, but must be careful and have appropriate strategies to ensure no effects on the economy. – Source: Vietbiz24.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial