Vietnam Under Pressure
Matthews Asia
By Taizo Ishida
June 22, 2012
I recently spent a few days in Vietnam for research, meeting with several companies—all of which expressed a cautious near-term outlook. Having seen an average of about 7% GDP growth each year since 2000, Vietnam is lagging thus far this year. During the first quarter of 2012, the country saw GDP growth of just 4%. This contrasts sharply from the environment I encountered during my prior visit in September last year. The biggest problem for Vietnam then was high inflation, which reached 23% in August 2011.
The country's inflation has since subsided to just 8%, and it seems to be suffering now for having grown too quickly. Like other nations, Vietnam's growth-minded government pumped large amounts of stimulus money into its economy and credit growth has been high—ranging between 20% to 60% from late 2006 until about mid-2011.
One company executive I spoke with during my trip commented that he has seen numerous small businesses suffer or fail since 2010, and his own retail business is also doing poorly this year. Furthermore, over the past two years, property prices in both Ho Chi Minh City and Hanoi, Vietnam's major cities, have declined 15% to 20%.
While there is much pessimism and preoccupation with the outlook for slower growth, what is mostly troubling is the country's slow restructuring of its state-owned Enterprises (SOEs), including state banks. A rapid increase in nonperforming loans has brought Vietnam under pressure. Bad debts in its banking system have risen to about 10% of GDP, according to the central bank.
Fortunately, the central bank has vowed to restructure nine weak banks and pledged to form a national asset management company to deal with the (mostly real estate sector-related) bad debts. Moves to shrink the number of banks in Vietnam and reform its financial sector should be a priority to place the country on solid footing and regain the confidence of both local and foreign investors.
(c) Matthews Asia
