Vietnam Government to Discuss Plans to Resolve Bad Debt

Vietnam’s government will discuss detailed plans tomorrow to resolve bad debt in the banking system as the country seeks to revive an economy that expanded at its slowest pace since 1999.

Government ministers and the central bank will meet tomorrow to plan the establishment of a debt asset management company “to resolve bad debt and help spur businesses,” Prime Minister Nguyen Tan Dung said at a meeting in Hanoi today. The company may help resolve about 100 trillion dong ($4.8 billion) of bad debt, according to a posting on the government website.

Dung has identified the debt overhang at banks as an obstruction to economic growth, which slowed to 5.03 percent this year. Foreign investment pledges fell 15 percent this year and Vietnam’s credit rating was cut by Moody’s Investors Service as weakened lenders and state-owned enterprises limited room for policy makers to boost expansion.

“We want to keep macroeconomic stability next year with slower inflation and higher growth,” Dung said at today’s meeting, which reporters were allowed to observe. “This will require effort from every ministry and province.”

The government will strive next year to attract foreign investment, the prime minister said.

The State Bank of Vietnam is working on a plan next year to bring down the banking system’s bad debt by about half, central bank GovernorNguyen Van Binh said in the government posting. That will be achieved through the debt asset management company as well as a central bank plan for lenders to resolve about 40 trillion dong to 50 trillion dong of non-performing loans using their loss provisions.

Politburo Discussion

Bad debt at Vietnamese lenders stood at 8.82 percent of total lending as of Sept. 30, Binh said last month. Binh will discuss tomorrow the plan to resolve bad debt and restructure lenders with the Politburo, the highest decision-making body of the Communist Party, according to Dung.

Dung also instructed Binh to manage money supply and policy interest rates in order to achieve the inflation target of 6 percent to 6.5 percent in 2013.

Ministries will also need to help companies to reduce unsold stockpiles, particularly vacant properties, to revive the market, Dung said. The central bank will also help businesses through its refinancing tools, Binh said.

Dung instructed relevant ministries to increase inflation surveillance next quarter and ensure sufficient supplies of goods to contain price gains during the lunar new year holiday season.

He stressed the need for the country to attract investment. Pledged investment into Vietnam dropped to $13 billion in 2012 after the Foreign Investment Agency revised figures for the last two years. Disbursed foreign investment fell 4.9 percent to $10.5 billion.

“It’s also crucial for us to draw more foreign investment, so we need to significantly improve the business environment and make us more competitive in the region,’ Dung said.

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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