Vietnamese banks ordered to beef up funds

State Bank of Vietnam sets June 1 deadline to protect against more NPLs.

The central bank has ordered banks to set aside more money to safeguard against non-performing loans. Banks are to make more risk provisions for normal loans, credit grants, including credit card debts, investment in unlisted corporate bonds and deposits in domestic and foreign banks.

It also asks all Vietnamese banks and Vietnam-based branches of foreign banks to report their loan classification to its Credit Information Centre that supervises provision-making activities.

Vietnam's banking system is staggering under one of Southeast Asia's highest bad debt ratios. This rose to 8.82% of loans in September 2012 from 3.07% at the end of 2011. Analysts, however, believe the actual ratio is much higher.

Vietnam’s economic growth fell to a 13-year low of 5.03% in 2012 as weak consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks' bad debt problems.

Businesses could not access loans due to their existing debts, while lenders tightened lending rules for fear of further NPLs. Vietnam's lending growth slowed to 8.91% in 2012 from an average 29.5% annual rise in the 2006-2011 period.