Viet nam : Capital adequacy ratio, GDP growth
In March 2012 the government approved a reform plan to strengthen
the banking system through mergers, recapitalization, the adoption
of international prudential standards, and improvements in bank
ervision. Several financially stressed banks were merged, and the
authorities disclosed additional data on the health of the banking system.
However, there was little progress on recapitalizing banks or resolving
NPLs. The capital adequacy ratio of the banking system fell to 13.6% in
January 2013 from 14.6% in April 2012 (Figure 3.31.9). While this ratio is
still well above the 9% floor set by the authorities, banks’ capital positions
may be weaker than reported if they have underestimated NPLs and not
made adequate provision for them.
The government also outlined a plan to improve SOEs’ disclosure,
governance, and operations. More information on this strategy is
scheduled to be disclosed in 2013.
Moody’s downgraded Viet Nam’s credit rating to B2 from B1 in
September 2012, citing banking system weaknesses and lower economic
growth. Standard & Poor’s has a long-term rating for Viet Nam of BB–
and revised its outlook to stable from negative in June 2012. Meanwhile
Fitch, which has a B+ long-term rating, affirmed its stable outlook rating
in January 2013.
------------ Economic prospects -------------
Government statements indicate that macroeconomic stability remains
the main priority. The discussion below assumes policy stimulation to
support growth during the forecast period will be moderate.
The central bank is targeting credit growth of 12%, stronger than the
2012 outcome of 8.9%, and M2 growth of 14%–16%, down from last year’s
actual growth of 22.4%. The central bank has removed restrictions on
lending for consumption, real estate, and marketable securities. After
inflation eased to 6.6% year on year in March 2013, the central bank
lowered a number of interest rates, including its refinance and discount
rates by 100 basis points to 8% and 6%, respectively. The impact of these
lower rates on credit growth may be muted until the banking sector
problems are addressed more decisively.
On the fiscal front the government has maintained the budget deficit
target at 4.8% of GDP for 2013. In January it allowed small and medium-
sized enterprises and labor-intensive manufacturers to defer corporate
income tax and value-added tax payments, and it offered subsidies and
tax breaks to revive the property market. Capacity to provide greater
fiscal stimulation is constrained by public debt, which has increased to
55% of GDP, and contingent liabilities in SOEs and banks.
Private consumption will get support from the downtrend in inflation,
though labor market weakness remains a dampener. The outlook for
investment has improved with a surge in FDI commitments from Japan last year and the policy decisions mentioned above. However, questions
over the soundness of the banking system will continue to weigh on
domestic private investment.
Exports are projected to maintain solid expansion, given higher
economic growth in the PRC and some other markets this year, and the
anticipated pickup in major industrial economies in 2014. Manufactured
exports will continue to trend up as FDI-funded factories come into
production. Imports also will increase, though, as domestic demand
gradually recovers, as well as to supply inputs for the export-oriented
GDP grew by 4.9% in the first quarter of 2013, marginally higher
than the year-earlier period, and the purchasing managers’ index
trended up slightly as orders increased. On the down side, growth in
industrial production at 4.9% and in real retail sales at 4.5% showed slight
decelerations from a year earlier.
Taking these factors into consideration, GDP growth is forecast at
5.2% in 2013, picking up to 5.6% in 2014 (Figure 3.31.10) if progress is made
in strengthening the banking sector and recovery in major industrial
economies gathers momentum in 2014.
Source : Asian Development Outlook Database - http://www.adb.org/sites/default/files/ki/2012/pdf/VIE.pdf