Non-performing loan resolution requires inter-ministerial efforts
  • | | October 02, 2013 02:46 PM

Despite the government's positive steps to address problems in the banking sector, Vietnam's economic reforms have generally been fitful and difficult. A non-performing loan (NPL) resolution can only be achieved with strong inter-ministerial collaboration, the Asian Development Bank (ADB) said in a major report released today.

 A non-performing loan resolution can only be achieved with strong inter-ministerial collaboration in Vietnam, the ADB said in its report. Illustrative photo.
The report also suggested the establishment of an inter-ministerial steering committee for implementing banking restructuring to help this process. An NPL resolution would allow interest rates to be lowered sustainably without increasing inflation.

The Update to ADB’s annual economic publication, Asian Development Outlook (ADO) 2013, which launched today, maintains the forecast for GDP growth for Vietnam at 5.2% for 2013, and expected gradual progress in dealing with NPLs could slightly lift growth to 5.5% next year. The inflation forecast is revised down, from ADO 2013, to 6.5% for this year, because food price inflation has decelerated more quickly than expected. Inflation is projected to climb to an average of 7.2% for 2014 due to monetary easing and increased liquidity.

The ADO Update commended the positive steps taken by the State Bank of Vietsam, (SBV), to deal with NPLs in the banking sector; in particular the formation of the Vietnam Asset Management Company (VAMC). The Update, however noted that the success of VAMC could depend on other supporting legislative and policy reforms not under the direct  mandate of the SBV. The Update also expressed concern over delays in implementation of improved loan classification and provisioning standards.

“The creation of VAMC is very positive but its success could depend on strengthening the legislative framework for dealing with secured assets, which will require strong inter-ministerial coordination and collaboration,” said Tomoyuki Kimura, ADB Country Director for Vietnam. “Implementation of improved loan classification and provisioning standards would have reduced risks to the banking system and improved investor confidence.”

Despite policy rate cuts, growth in lending was constrained by banks’ impaired balance sheets, concerns over the financial health of borrowers, a sagging property market, and weak demand for credit. The ADO Update suggested that progress on an NPL resolution would allow further lowering of interest rates and increase cash flow to productive sectors of the economy.

“Gradual progress in resolving NPLs will improve business confidence,“ added Mr. Kimura. “As this happens, policy stimulus, including the cuts in interest rates this year, could gain traction in boosting credit and GDP growth.”

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