Fitch Warns Vietnam of New Wave of Defaults Triggered by Rapid Credit Growth

Tuan Minh

12:49 21/09/2017

BizLIVE - A new cycle of rapid credit growth to meet GDP targets could increase risks of new bad debt creation and eventually trigger another wave of defaults, Fitch has warned. 

Fitch Warns Vietnam of New Wave of Defaults Triggered by Rapid Credit Growth

The headquarters of the SBV in Hanoi. Photo: Internet

Another extended period of rapid credit growth to meet GDP targets could eventually trigger another wave of defaults in Vietnam, Fitch Ratings has said in a press release, referring to the government’s credit-boosting plan aimed to rev up economic growth.
The State Bank of Vietnam’s earlier this year set a target for loan growth at 18% in 2017, and there have been reports that this is being raised to 21%-22% to help the government hit its 6.7% GDP growth target for 2017. GDP growth in the first half of this year came was slow at 5.9% from a year earlier. The SBV also cut its policy rate to 6.0% in July from 6.5% to give the economy a boost.
Current asset-quality problems can be traced back to rapid credit growth and poor lending standards during the 2000s. Risks crystallized in the 2011-2013 and caused significant stress in the financial sector, the U.S. rating agency noted.
Earlier this month, Noelan Arbis, economist, ASEAN at the Hongkong and Shanghai Banking Corporation (HSBC), wrote in a note that Vietnam could easily reach a 21% credit growth rate by the end of the year, but this may “pose considerable risks to the economy given the slow resolution of legacy non-performing loans and the quality of credit that could be created in reaching the new target.”
Rapid credit growth may create new risks for the banking sector, especially if new credit is placed in less productive industries, according to the note.

TUAN MINH

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