January 12, 2012 / 5:05 AM / 7 years ago

UPDATE 1-No banking crisis in Vietnam, cbanker says

(Adds context, details)

HANOI, Jan 12 (Reuters) - Vietnam is not experiencing a banking crisis, despite a quick increase in non-performing loans recently and plans to restructure the troubled sector, the central bank governor, Nguyen Van Binh, said on Thursday.

“There is no banking crisis in Vietnam,” Binh said in remarks carried live on state media.

Economists have expressed growing concern about the health of the banking system after soaring inflation and slumping property prices followed years of unsustainably high credit growth.

Rumours have circulated for months that some smaller banks are already technically insolvent, but none have collapsed publicly and the central bank has pledged to stave off bank failures.

The State Bank of Vietnam has been encouraging mergers of weak banks with stronger ones and Binh told an economic forum on Wednesday he expected as many as eight banks to be merged during the first quarter of 2012.

But there is little clarity about the central bank’s plans for handling non-performing loans, which official statistics indicate to be near 4 percent of all outstanding loans but experts say is much higher.

“Bad debt has increased, and at a high speed recently, but it is under our control,” Binh said. He added later that the bad debt level was “not too high”.

Vietnam’s classification of bad debt is opaque and differs from international standards, and banks are known to deploy a range of tactics to hide non-performing loans.

Liquidity in the banking system has become squeezed, in part a result of the bad loan problem.

The Vietnamese government has announced the broad outlines of a plan to restructure the banking sector, state-owned enterprises and public spending, but details and roadmaps have yet to be made public.

Victoria Kwakwa, country director for the World Bank in Vietnam, said on Wednesday her biggest concern about the country at the moment was the financial system.

Vietnam agreed last year to an in-depth analysis of its financial sector by the World Bank and International Monetary Fund, called a Financial Sector Assessment Programme (FASP), but it remained unclear when the assessment would take place, Kwakwa told reporters on the sidelines of a conference on the economy.

“The Fund is ready to help. The Bank is ready to help. Let’s really find where the problems are and let’s try and fix it, because the longer you delay the more it’s going to cost you,” she said.

“We all know these crises when they hit they cost more. It’s better to do it now and not let yourself be overtaken by a crisis when the costs are much higher to resolve.” (Reporting by Ngo Thi Ngoc Chau and John Ruwitch; Editing by Ramya Venugopal)

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