Solutions sought for bad loans
HCM CITY (VNS)— Viet Nam’s non-performing loans (NPL) can be managed even though they might be as high as 10 per cent, says an economist with the Standard Chartered Bank.
Betty Rui Wang said there were different estimates that put the country’s NPL ratio at between five and 10 per cent, “but our judgement is that as long as it does not exceed 20 per cent, it is manageable”.
“We believe that government involvement either via credit extension or budget financing will be key to accelerating the problem solving process,” she said.
She noted the peak ratio in 1998 of Thailand was 45-50 per cent and Indonesia, 40 per cent, and their recapitalisation were respectively 34 and 20 per cent of their GDP.
Potential funding channels for bank recapitalisation includes banks taking a “haircut” that would introduce more discipline to their future lending decisions, Rui Wang said.
“But a significant cut could undermine the banking sector and would be unfavourable to foreign capital involvement. Given that the government is the ultimate shareholder of most banks, much of the write-offs could be borne by the government, and hence, taxpayers,” she said, adding the State Bank has said bad debt provision in the banking system is about 1.6 percent of the GDP.
On the possibility of a budget bailout, she said that the country is running a fiscal deficit, and there is little money carried over from past years.
The government has also not set aside money for the Asset Management Company to buy back bad debts in the 2013 budget. This option may also be socially unpalatable, as it would be seen as using taxpayers’ money to bail out banks, she said.
If the government or a policy bank buys back bad loans, it would take the loans off the balance sheets of commercial banks and put them into an institution with a public mandate (but commercial standards), but determining the “haircut” level would be an issue, she added.
Rui Wong said capital injection from the central bank using FX reserves would be another channel, but Viet Nam does not have a big pool of FX reserves to start with. — VNS