VietNamNet Bridge – The bad debt ratio of the banking system may fall to 4-5% under Vietnam’s accounting standards by the end of this year, said Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission.

He forecast economic growth would be around 5.5% and inflation 7-8% this year. In addition, the exchange rate may rise 2-3% and short-term deposit rate may go down 1%, the expert said.

He was speaking at a workshop called “Sharing investment opportunities in times of crisis” held by FLC Securities Joint Stock Company in HCMC last Saturday.

Bank restructuring, with a focus on bad debt resolution and profitability restoration, is the most decisive stage of the economic restructuring process, he stated.

The central bank has asked commercial banks to restructure part of their bad debt. The remaining part will be handled by the forthcoming national asset management company (AMC).

“AMC will raise funds from issuance of a special bond guaranteed by the central bank. The company is directly managed and supervised by the central bank,” said Nghia, who is also a member of the National Advisory Council for Monetary Policy.

During the process of bad debt settlement, small banks with high ratio of bad debt have to make risk provisions for financial assets. They might even be merged or taken over, which will affect the banking system and the stock market.

Bad debt resolution can make the property market more sluggish, especially when the debts acquired by AMC cannot be sold or are sold at low prices, bringing losses to both banks and enterprises.

Recovery in 2014

Nghia predicted the property market would record better liquidity in the third quarter and see clearer signs of recovery in the fourth quarter. Still, not until 2014 will the market recover in a sustainable way.

Meanwhile, the stock market will face a period of modest growth and find more positive recovery signs in the second half. The market’s recovery will be more significant in 2014 if there are no macroeconomic shocks, he said.

“The milestones like the establishment of AMC, interest rate cuts, financial supports for homebuyers and external signs of economic improvement will help some industries such as mining, electronics and processing recover first. The financial sector will recover later in the restructuring process,” said Nghia.

Sharing the same view, National Assembly deputy Tran Du Lich said restructuring would be grim, but it would produce positive outcomes. The market will become healthier, offering a chance to train and enhance the quality of human resources, he said.

“Although growth will remain weak and below potential, Vietnam’s economy has hit the bottom and will recover in 2013 if the Government is determined to resolve the medium- and long-term problems,” he stated.    

Source: SGT