Vietnam Downgrade Adds Momentum to Clean Up State Loans: Economy

As Vietnam wins a yearlong battle to tame inflation and stabilize its currency, the spotlight is moving to the drag on growth from undercapitalized banks that have channeled credit to the nation’s state-owned companies.

Failure to clean up the banking system -- a “weakness” Moody’s Investors Service cited last week when it cut Vietnam’s debt rating -- could result in slower growth for the next five to 10 years, said Matt Hildebrandt, a JPMorgan Chase & Co. economist in Singapore. The economy already faces its smallest expansion since 1999 after years of unbridled lending saddled banks with the highest levels of bad debt in Southeast Asia.