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21 July 2009

Bad loans on the rise in Vietnam's banks

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Bad debt in Vietnam's banking system rose to 2.52 percent of loans at the end of June, up from 2.17 percent from 2008, as lending to securities and real estate investment surged, a report in said.

Last month, Fitch Ratings downgraded Vietnam's local currency sovereign rating to BB-minus from BB, blaming sustained fiscal decline and structural weaknesses in its economy.

It warned that the banking system is weak and vulnerable to potential stress, citing high lending growth and deteriorating asset quality.

Foreign experts have said bad debt in the banking system could be as high as 15 percent to 20 percent, if international accounting standards were used.

Bank loans for investment in securities rose 28.3 percent from the end of last year, while loans for investment in real estate rose 10.5 percent during the period, the Nhan Dan newspaper quoted the State Bank of Vietnam's data as showing.

Central bank reports said loans at the end of June rose 17 percent from the end of 2008, without giving values.

In early June a central bank official said bad debts were rising quickly but the rate was still under control.

Given the annual credit growth cap and loan expansion so far this year, the central bank has told big state-owned banks and partly private lenders Vietcombank and VietinBank to cap their credit growth at 25 percent this year.


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