Vietnam Banks Bad Loans Rising Along With Rates, Moody’s Says

By Bloomberg News
May 30, 2011

The value of bad loans at Vietnamese banks may increase as borrowers’ cash flows weaken because of higher interest rates, Moody’s Investors Service said today.

Vietnamese banks for which information was available from annual reports in English booked a higher value of non- performing loans as of the end of 2010 compared with a year earlier, Moody’s said in a note today.

“This trend is continuing,” wrote Christine Kuo, a Singapore-based senior credit officer for Moody’s. “The increase reflected weakening corporate cash flows as a result of lower profits owing to rising costs and higher debt-service burdens because of rising interest rates.”

Vietnam’s central bank this month increased its repurchase rate to 15 percent, up from 14 percent previously and from 10 percent at the beginning of the year. Lending rates at commercial banks have climbed as high as 28 percent, VinaCapital Investment Management Ltd. said last week.

Prime Minister Nguyen Tan Dung said in February that the government will aim to curb credit growth at less than 20 percent this year, down from an earlier target of 23 percent.

“A slower pace of credit expansion will help control inflation, benefiting banks’ funding and asset quality,” wrote Kuo. Vietnam’s year-on-year inflation rate in May reached 19.78 percent, the highest in more than two years.

“While tighter credit will lead to rising non-performing loans this year and possibly next year, lower credit growth will encourage banks to focus on better borrowers,” Kuo wrote.

--Jason Folkmanis in Ho Chi Minh City. Editor: Tony Jordan

To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji in Hong Kong at csomayaji@bloomberg.net