Vietnam’s return to the faster economic growth of previous years is hampered by the cautious pace of reform to banks and state enterprises. GDP growth edged up in 2013 and is expected to recover further over the next 2 years. Inflation is forecast to remain relatively subdued. Vietnam’s economy now enters its third year of macroeconomic stability with lower inflation, strong external trade and capital flows, and a firmer exchange rate.
To mitigate vulnerabilities in the banking sector, the government took several steps that addressed impaired bank balance sheets, insufficient bank capital, and inadequate prudential standards. Most notably, it established the Viet Nam Asset Management Company (VAMC) primarily to acquire, restructure, and sell NPLs. By year-end, the VAMC had purchased the equivalent of $1.9 billion in bad debts from 35 banks (estimated at 1.1% of all outstanding loans). As payment, the VAMC issued special bonds of up to 5 years with zero interest, which the banks can use as collateral to access the SBV’s refinancing facility.
The SBV reported that the NPL rate had declined to 3.6% of all loans by the end of 2013, owing mainly to transfers to the VAMC, but it added that NPLs could be 9% if restructured loans were included. Rating agency Moody’s estimated NPLs could exceed 15% if international accounting and provisioning standards were applied (Figure 3.31.7).
In addition, the government is gradually implementing a program to strengthen state-owned enterprises (SOEs). This plan includes equitizing, or partly privatizing, more state firms and sharply reducing the number of SOEs to 690 by 2015 and 200 by 2020. SOEs have been instructed to divest themselves of risky noncore operations. In June 2013 the government simplified SOE reporting requirements in a move expected to encourage their disclosure of financial information.
Read more …