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Vietnam Seeks Rule Changes to Accelerate Bad Debt Sales

Aug. 8 (Bloomberg) -- Vietnam may change rules to quicken bad-debt sales that have been stalled by a reluctance to accept losses, hampering an economy that risks missing its growth target this year.

“Right now, everyone seems to be afraid of taking responsibility for creating losses to the state, so no one dares to make decisions to sell any debt at very low prices,” Nguyen Duc Kien, deputy head of the National Assembly’s Economic Committee, said in an interview in Danang yesterday. “That’s why the government is discussing changes in existing regulations related to the issue to have bad debt sold faster.”

Vietnam is struggling to clean up bad debt that has hobbled lending and hurt businesses, with the asset-management company resolving less than 2 percent of about 51 trillion dong ($2.4 billion) of soured loans bought from banks since its formation in 2013. Economic growth will miss a 2014 target of 5.8 percent if officials don’t put their efforts into implementing planned measures, Prime Minister Nguyen Tan Dung said yesterday.

Changes in regulation would allow the asset company, known as VAMC, to sell the debt it bought at a low price to lure buyers, according to Kien. The VAMC has resolved 996 billion dong of soured debt since it started, according to data from the company, which hasn’t said how much of that was sold.

Growth Risks

The government should move quickly to amend regulations to spur lending and boost growth, Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, said.

“It is some inappropriate regulations that are hampering a faster implementation of reforms in the banking system,’’ said Pham. “With the overhang of bad debts on their balance sheets, banks are reluctant to lend. And without more credit growth, it is very challenging to attain the GDP growth rate of 5.8% as proposed by the prime minister.”

Vietnam’s credit growth was at 3.52 percent in the first half of the year, according to the central bank. The government has targeted loan growth of 12 percent to 14 percent this year.

The benchmark VN Index dropped 0.4 percent at the close in Ho Chi Minh City today. The dong was little changed at 21,215 as of 4:50 p.m in Hanoi, according to data compiled by Bloomberg.

Bad loans amounted to 4.84 percent of total lending as of the end of June, Thoi Bao Kinh Te Vietnam newspaper reported July 21. The country’s actual non-performing loans may be substantially higher than reported because of a lack of consistent classifications and reporting standards for banks, Standard & Poor’s wrote in a report July 15.

Economic growth will be lower than expected and “very likely” will be at about 5.6 percent this year as businesses are struggling, Bui Quang Vinh, minister of planning and investment, said in an interview in Danang today. Anti-China riots in May are also impeding foreign investment, he said. Dung said growth could be slowed to 5.25 percent this year if ministries and provinces “don’t work hard enough.”

Pledged foreign direct investment in Vietnam dropped 35 percent to $6.85 billion in the first half, official data showed. Disbursed foreign direct investment in the country totaled $5.75 billion through June, an increase of 0.9% from the year before.

The finance ministry is considering easing some import and export tariffs to help companies, Nguyen Cong Nghiep, a deputy finance minister, said yesterday in an interview.

“We are working on more measures to help businesses cut costs and cope with the economic slowdown.”

To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net K. Oanh Ha

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