VIETNAM Loses Glow as Market Darling

7/30/2019 VIETNAM Loses Glow as Market Darling

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VIETNAM Loses Glow as Market DarlingThe Wall Street Journal

Until a few years ago, Vietnam was one of the world's hottest emerging

markets. Now it faces an urgent task: fix a beleaguered banking system or

watch its economy continue to slip behind faster-growing neighbors.

Piles of bad loans following the financial crisis have dragged down growth

in Vietnam and left banks weakened and reluctant to lend.

Vietnam, the darling of emerging markets in Asia just a few years ago, is

now struggling with companies unable to pay back debts. The WSJ's AlexFrangos explains how and why the economy has entered a downward

cycle.

The government recently acknowledged that nonperforming loansmany

made to inefficient state-owned companiescould be as high as 10% of

the banking system, substantially higher than reported by individual

banks. Fitch Ratings analysts think the number is as high as 15%.


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A record number of firms are declaring bankruptcy, and in the sprawling

urban areas encompassing Hanoi and Ho Chi Minh City, the landscape is

littered with stalled construction projects as builders run out of cash or put

on the brakes as demand for condominiums and office space dries up.

Vietnam fought off rumors in recent days that it was seeking an

International Monetary Fund bailout for its banking system. An IMF

spokeswoman said no requests for aid had been made. State Bank of

Vietnam Deputy Gov. Le Minh Hung said in a statement on the

government's website that the country had no intention of seeking arescue.

However, the IMF and others have been advising Vietnam on how to

implement a domestically financed bailout that would restore its banks to
http://blog.yahoo.com/_NMTZEZMN3TNFNP6A4KZZRDZF3Y/articles/813101/index


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health. In its latest economic review the fund said that "quick and

comprehensive action" was needed to solidify weak banks and put the

economy on more solid ground.

Fears over Vietnam's banks intensified in August when one of the country's

most prominent tycoons, Nguyen Duc Kien, was arrested for allegedly

improperly lending money to real-estate projects. Efforts to reach Mr. Kien,

who now runs a number of private investment funds and owns Hanoi's

main professional soccer club, have been unsuccessful. Stocks dropped in

the days following the arrest, and the Ho Chi Minh Stock Index is down

18% since the beginning of May.

Vietnam shares fell 2.2% Monday, led by selling in property-related stocks

after state media reports suggested real-estate developers are trying to cut

prices to boost sales of apartments.


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Song Da Thang Long Joint Stock Co. is among the local developers that

have struggled. In July it secured an additional loan of 300 billion dong, or

around $14 million, from the state-owned Bank for Investment and

Development of Vietnam to help complete its sprawling, 13-tower U-Silk

City development in Hanoi's suburbs. The project began in 2009 at the

height of Vietnam's property boom but quickly fell victim to the subsequent

property slump and soaring interest rates.

Some question whether this cash injection is enough to keep the project

alive, and Song Da Thang Long's stock price has fallen about 60% in the

past six months. Chairman Nguyen Tri Dung has said the firm is trying to

arrange additional credit lines with other lenders. He couldn't be reached

for comment.


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Economists warn that Vietnam has entered a dangerous cycle where

banks, saddled with bad debts, are unwilling to lend, making it harder for

businesses to invest. That feeds into slower growth, which in turn makes it

harder for companies to pay back loans, again harming the banks.

The result is that Vietnam's economy is likely to grow below its potential for

years to come, unless stronger steps are taken to clean up the banks,

economists say.

"I don't think there's any quick fix to a problem like this, as you see in the

West. It takes time to work through a solution" to a banking crisis, says

Gareth Leather, an economist at Capital Economics. He figures Vietnam's

economy will grow at closer to a 5% rate in coming years than the 8% the

country enjoyed through much of the previous decade. Although higher

than growth rates in the West, 5% is considered slow for a developing

Asian country like Vietnam and might not be fast enough to generate

sufficient jobs to keep its growing population employed.

The government this month revised its forecast for 2012 growth down to

5.2% from 6% previously.

Vietnam's leaders have acknowledged that a fix is needed. Prime Minister

Nguyen Tan Dung in March approved a three-year restructuring plan for

the banking sector designed to strengthen the country's largest banks and

encourage a series of mergers among smaller lenders, but officials appear

uncertain about how to put the blueprint into effect.

Plans to launch a "bad bank" to buy up distressed assets have been

discussed, but a foreign investor familiar with government discussions say

implementing such a solution is being delayed by Hanoi's lack of expertise


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But because of the large role the state plays in industry, the government

has so-called contingent liabilities to back up debt in state-owned

institutions. Fitch Ratings figures those liabilities equal an additional 10% of

Vietnam's $125 billion GDP.

In the meantime, investors are waiting for more action to resolve the

banking situation. Louis Nguyen, chief executive of Saigon Asset

Management, which invests in a broad range of Vietnamese companies,

said his firm tried to launch a fund last year in conjunction with a large

Vietnamese bank to invest in problem loans.

But the fund was put on hold when he found the banks were unwilling to

acknowledge problems on their books and sell loans at any sort of discount

to their face value.

Nguyen Anh Thu in Hanoi contributed to this article.

A tiger at bayWith little prospect of meaningful reform, theeconomy could get even shakierSep 15th 2012 | HANOI | from the print edition


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FOR A Communist leadership that prides itself on bringing

political and economic stability to its 90m subjects, the past few

weeks in Vietnam must have seemed like a nightmare. There

have been more bank runs, executives on the lam, arrests and

credit panics than the country has seen in years. So febrile is the

atmosphere that on September 7th the deputy-governor of thecentral bank had hurriedly to deny rumours that the government

had just asked the IMF for a bail-out.


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The mere presence of an IMF team in the capital, Hanoi, appears

to have set off the latest wobble. Yet the recent unease really

began with the arrest on August 20th of Nguyen Duc Kien, a

flamboyant businessman and founder of the Asia Commercial

Joint-Stock Bank (ACB), one of the countrys largest. Even though

he left the board of the ACB last year, Mr Kiens detention onvague charges of illegal business was enough to start a run on

the bank and a plunge in the Vietnam Ho Chi Minh stockmarket

index (the mind boggles at what the great Marxist would have

thought of having it named after him). Confidence was further

undermined when the ACBs chief executive was arrested for

alleged economic mismanagement. The whole episode

reminded investors that after years of sloppy management andexuberant lending, Vietnams banks are in dire shape; and that

corruption and waste pervade the economy.

This was never a secret, but during the boom years in the middle

of the past decade, when the economy was growing by 8% a year


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and foreign investment was pouring in, nobody much cared. Now,

with slower growth, huge business debts and more competition

from places such as Cambodia, Indonesia and Myanmar, the

problems loom large. It did not help when, two months ago, thecentral bank admitted that bad debts amounted to up to 10% of

all bank loans, double the level previously admitted to. The real

figure could be two or three times that.

The hitch in Hanoi

And so confidence in the Vietnamese economy, especially among

Western investors, is tumbling. Foreign direct investment (FDI)into Vietnam, at $8 billion for the first seven months of the year,

is a third lower than a year earlier. Japan accounts for fully half of

all the inflows.

Trying to look on the bright side, some local businessmen

applaud the central bank for at least admitting to the dismal

figuresin the past that could never be taken for granted.

Equally, they say that Mr Kiens arrest shows a new resolve by

the government to crack down on excesses.

Indeed, other high-profile arrests and sackings have taken place

this year. Nine executives from Vinashin, a shipbuilder and one of

the biggest state-owned enterprises, which dominate the

economy, were jailed for up to 20 years following the companys

near-collapse under $4.5 billion of debt. The head of another

giant enterprise, Vietnam Electricity, was sacked after it lost more

than $1 billion last year. This month police arrested the former

head of the national shipping line who had gone on the run in

March after a probe into corruption at the firm. In this context,


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one long-term foreign investor in the country argues that Mr

Kiens arrest was generally positive and necessary, an indication

that an anti-corruption drive is gathering pace.

Other analysts of the situation are more sceptical, arguing that

the arrests are less a push against corruption than the

consequence of a power battle at the top of the Communist Party,

notably between the prime minister, Nguyen Tan Dung, and the

president, Truong Tan Sang. The Vinashin executives and Nguyen

Duc Kien were closely associated with the prime minister, and

their downfall will have diminished his standing.

What is more, one independent economist, Nguyen Quang A,

argues, even if these arrests do indeed herald a concerted

campaign to get rid of corrupt bosses, it will barely scratch the

surface of the countrys deep-rooted economic problems. The

privileged place of the state enterprisesaccounting for two-fifths

of the countrys outputis chiefly responsible for all the graft,

misallocation of resources and mad spending that drags Vietnamdown. Foreign executives say it is a nightmare doing business

there. The whole system needs changing, Mr A says, not just a

few people thrown in jail.

As in China, the Communists cling to the state enterprises as a

means of keeping political control over the economy. Yet it means

that politically connected but incompetent managers have beenallowed to build up sprawling empirestypically including taxi

firms, banks, hotels and morethat make little business sense. It

enriches a few bosses but saddles the state enterprises with

enormous debts for which, in the end, the government is liable.


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The Communist Party shows no sign of cutting loose the state

enterprises. Only last year it staunchly repeated its pledge that

they must continue to play the leading role in the economy. If

anything the party now appears to be more determined to exertpolitical control. This year the authorities have been unusually

aggressive in cracking down on dissenting voices, especially those

that call for more democracy. Bloggers, in particular, have been

singled out, getting long prison sentences for propaganda

against the state. That hardly seems like the conduct of a

government intent on shaking up the system.

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VIETNAM Loses Glow as Market Darling