Bank of Vietnam Reports Steady Rise in Bad Debts

The State Bank of Vietnam recently announced that bad debts jumped to 4.03 percent of outstanding loans last April, from 3.93 percent in March, and 3.86 percent in February. The debts dropped from 4.55 percent last November to 3.61 percent in December, when the Vietnam Asset Management Company (VAMC) made a number of major purchases. The debts quickly rose to 3.74 percent in January. The Central Bank established the VAMC last July to rescue debt-laden lenders by exchanging their bad debts for a “special bond” redeemable for loans from the central bank. But insiders said the sharp shifts in the bad debt ratios from month to month has undermined the effectiveness of the organization. The central bank earlier said that the VAMC bought nearly VND4 trillion (nearly US$188 million) worth of bad debts from ten banks in the first quarter of this year. VAMC pays indebted banks with a “special bond,” which they can use to borrow from the central bank. At the time, Chief Inspector Nguyen HuuNghia described this year’s target purchase of VND70-100 trillion of bad debt “feasible.” But he admitted, “The purchases have progressed at a turtle's pace.” A combination of cautious banks and troubled businesses played a major role in the increase of the bad debt ratio, the report said. Source: ThanhNien Comments: Vietnam is one of the poorest Asian countries (According to the World Bank, in 2013 Vietnam’s GDP per capita was $1,911, that is almost 30-times less than in the USA). But the Vietnam financial system has already met the problems typical for the “overheated” markets. Part of “bad” debts will increase the critical level and may collapse the banking system if we won’t solve this problem. That is why the CB from the one hand prints the money and buys “bad” debts, and from the other hand toughens credit rules. Debt volume reduction will inevitably cause economic growth rates slowdown. But in poor countries printing money is related with bigger problems than in the rich ones. USA has well-developed financial markets, that is why price rise on consumer goods in 2013 is only1.5% in spite of big money income. Additional printed money, in such poor countries as Vietnam, directly affect the level of consumer prices. Inflation in Vietnam last year caused 6.6%. High inflation and low rates of growth, in its turn, complicate the economic situation of many companies and the population of the country, which contributes to the increase of unpaid credits and the volume of “bad debts”. On the Vietnam’s example it is clear that the modern financial system doesn’t cause economic growth, rather it pulls the developing countries into a vicious circle of stagnation and inflation