Vice Chairman Phung Quoc Hien of the National Assembly (NA) voiced concern that bad debt would escalate though the central bank has reassured that it is now at a safe level, less than 3% of total outstanding loans.

Mr. Phung Quoc Hien

At a meeting of the NA Economic Committee last Friday, Deputy Governor Nguyen Thi Hong of the State Bank of Vietnam (SBV) affirmed the current bad debt ratio was risk-free. This meeting was held to help the committee complete its socio-economic report for submission to the NA at its next sitting later this month.

Non-performing loans at banks by the end of August had accounted for 2.66%, below the 3% target set in late 2015. “Bad debt is below 3% at most banks,” Hong said.

In the first eight months of the year, more than VND58 trillion in bad debt was settled thanks to declines in loan defaults and  risk provisions. Vietnam Asset Management Company (VAMC) bought some VND16 trillion in bad debt.

Hong said the central bank would factor bad debt into the banking system restructuring scheme.

Bad debt remains worrisome

Hong gave the response after Chairman Vu Hong Thanh of the NA Economic Committee expressed worries that bad debt had been only handled by VAMC while the SBV had adopted no solution to this problem.

However, her response did not make NA Vice Chairman Hien rest assured. He told Hong: “Regarding the settlement of bad debt, 2.98% you mention is just the new debt. What about the old sum of VND200 trillion?”

He underlined the importance of keeping bad debt from rising. “Bad debt is piling up. I suggest a review of banks’ lending and mobilization mechanisms.”

Hien said lending operations were not strict, failing to assess the efficiency of borrowing projects.

Credit seen growing 20%

The meeting found that lending rates were preventatively high in Vietnam, making it hard for enterprises to compete.

Hong, however, cited the World Bank as saying that the average lending rate was 13% in Myanmar, 6.6% in Thailand, 5.5% in the Philippines and 5.5% in Singapore.

“Compared to those figures,  short-term lending rates in Vietnam are low, while medium and long-term rates range from 9% to 11%, which are not so high compared to other countries in the region,” Hong said.

She said credit growth was 11.74% in the first nine months, versus 11% in the same period last year.

Banks are currently asking the central bank for expansionary policy. With a monthly rate of about 2%, credit growth will have reached 18-20% by the end of this year.

“The economy is still dependent on more bank lending. While public investment is difficult to step up, credit is the key funding source for growth. If credit growth was curbed at 15-16%, the corporate sector might oppose,” Hong said, seeking to ease NA deputies’ worries that high credit growth would trigger inflation.

She said real estate loans picked up only 6.72% in the first eight months, down from 13.26% in the year-ago period.

SGT