Vietnam’s bad debt ratio has gone from 2 percent in January to 3.56 percent by the end of July, according to the State Bank of Vietnam and reported by Vietnam Plus.
Vietnam’s economy has been struggling since the end of last year when limits on how much credit banks were allowed to issue created cash flow problems for a number of firms. When these limits were reset at the start of the year, many firms had already sold assets in order to finance their day-to-day operations and therefore no longer had collateral to secure loans. Lower demand in key export markets also saw the revenue of many of these businesses take a hit and these factors combined have led to an increase in defaults and bad debts. Whereas the government is urging banks to lower interest rates and lend more to stimulate the economy, this bad debt ratio data suggests lending risks for the banking sector are on the rise and this may not be the best path forward.