Competition requires a clean-up in Vietnam
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Competition requires a clean-up in Vietnam

High levels of non-performing loans, a stagnating economy and deterrents to foreign investment are putting pressure on Vietnam’s banks.

Local banks in Vietnam are going through a mini-crisis. The State Bank of Vietnam (SBV) claims that the non-performing loan ratio stood at 4.51% as of May this year, but experts argue that the actual level is more likely to be about three times the official amount. High NPLs are crippling the banking sector and putting a strain on banks’ liquidity, forcing them to increase their provisions.

Confidence in Vietnam’s economy is low. Weak external demand from China has pulled down output and the fear of rising interest rates in the US has weakened the currency. Corruption scandals that rocked such institutions as Asia Commercial Bank last year have made customers wary of the sector in general.

Trust in the banking sector is already low. "As it stands, the government does not disclose data on the banking sector – on most things actually – quickly or regularly as compared with others. It is often up to us to decipher complicated and uncorrelated information," says Brett Krause, chief country officer at Citi in Vietnam. "Even if there was a bank with healthy levels of NPLs on its books, no one would believe it because they have no real confidence in accounting and the information given out by local banks."

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