The World Bank said it is open to a new loan that may provide support for a potential recapitalization of Vietnamese banks, which are struggling with rising levels of bad debt that have slowed credit growth.
“We would certainly be ready to find the resources to bring to the table, additional to what we’re doing, to support them in this area,” Victoria Kwakwa, the agency’s Vietnam country director, in an interview yesterday. “Our sense is they might need some support,” she said, adding that the government has not made such a request.
Vietnam’s government has said it plans to restructure its banking system, and Fitch Ratings has estimated the cost of recapitalization may range from about 7 percent of gross domestic product to as much as 20 percent. Rising levels of bad debt have damped corporate growth and domestic demand, and slowed economic expansion to the slowest pace since 1999.
Vietnam faces the risk of the negative economic consequences of a banking system that cannot support credit growth unless it takes measures to address high levels of non-performing loans, Moody’s Investors Service said this week.
Any new World Bank loan would be in addition to existing lending plans, and it “wouldn’t be smaller than the typical loans we do, which are usually in the hundreds of millions, but we don’t necessarily have to bring everything to the table,” Kwakwa said during a visit to Ho Chi Minh City. “It might be World Bank resources catalyzing others, including maybe some private resources.”
A so-called Financial Sector Assessment Program being undertaken jointly by the World Bank and the International Monetary Fund and scheduled to be completed in the first half of the year, should provide a “better sense” of the level of non-performing loans, she said.
Fitch said its “scenario analysis” of the potential recapitalization bill is based on its assumptions of targeted capital adequacy ratios and recovery rates on bad debt, with the range dependent on the actual level of non-performing loans.
Vietnam is considering establishing an asset management company to resolve bad debt, which Kwakwa said may be set up by the end of March. The government is reluctant to use taxpayer money to “bail out the banks or to address the NPL issue,” Deepak Mishra, World Bank’s lead economist for Vietnam, said yesterday.
The World Bank is looking for “something that can give us a credible and an objective basis for some of the actions,” said Kwakwa. “We would hope that they would think the Bank can bring value, just as we did with other Asian countries that went through similar difficulties a decade-and-a-half or so ago.”
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