Vietnam banking system at high risk, says S&P

[Ulhas Joglekar]

Tuesday, January 25, 2000

Vietnam banking system at high risk, says S&P
Dean Yates

Hanoi, January 24: Vietnam's banking system is likely to remain vulnerable
and at risk as the government reforms the sector in line with international
standards, Standard & Poor's said on Monday.
In the past year the government had established some foundations for the
development of a robust banking sector, but effective implementation of
recent initiatives combined with deeper reforms were needed, the ratings
agency said.
It said implementation of strengthened asset classification and provisioning
standards along with progress toward setting up an entity to buy bad bank
debts was evidence of Hanoi's commitment to bank reform, albeit at a
measured pace.
But poor disclosure made it difficult to assess progress. "Asset quality is
weak, disclosure poor, risk management systems underdeveloped, and despite
recent liberalisation efforts, the market remains highly regulated," S&P
Said in a country report on Vietnam, obtained by Reuters.
"The move toward more conservative prudential standard show evertentative is
welcome, but combined with less robust economic growth will inevitably
result in increased volatility in the sector." ".During this transition, the
Vietnamese banking system is likely to remain at the highest end of the
global industry risk spectrum," the report added.
The report comes at a time when Vietnam is experiencing its lowest growth in
a decade. The World Bank has said Vietnam might only grow 3.5 percent this
year and three percent thereafter if Hanoi does not accelerate economic
reforms. Central bank governor Le Duc Thuy has estimated total overdue bank
loans at some 14.5 percent of outstanding credit, but S&P Said the figure
would be much higher if calculated by international standards.
It did not give its own estimate.The agency said there was a need for more
disclosure and transparency, a headache for all businesses in Vietnam. "Much
of the industry data is covered by secrecy laws, and meaningful information
on the sector...and on individual Financial institutions has typicallynot
been available."
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