Vietnam promises huge cut in bank NPLs

Vietnam will take tough action to reduce NPLs to 3% to 4%.

The vow was made yesterday by Prime Minister Nguyen Tan Dung who said this goal will be achieved by 2015. The banking system’s non-performing loans stand at 8.8% and are estimated at US$12 billion. Of this total amount, 73% is mortgage based.

"Bad debt has been preventing loans to reach businesses and is a threat to the stability of the banking system and financial markets," Dung said. "Resolving bad debt is an urgent task which needs to be done swiftly and resolutely, but with a reasonable roadmap and tight procedures."

Dung did not elaborate on what specific measures will be taken, but he said banks will have to restructure and those with bad debts will have to curb their credit growth.

He noted the government has urged the State Bank of Vietnam, the central bank, and the Finance Ministry to establish a "debt-trading company" that will buy NPLs from banks. Plans for this trading company have been on hold for months.

Vietnam’s sagging economy and a weak financial system have worsened its bad debt problem. It already had one of the highest levels of NPLs in Southeast Asia.

Fitch Ratings has put the NPL loan figure at 13%, however. Total loans in Vietnam's banking system are estimated at some US$130 billion, said the central bank.