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Vietnam's liquidity crunch eases but property-sector risks linger

HANOI, May 23 (Xinhua) -- Funding stress in Vietnam's banking system, which has complicated the government's efforts to shore up the economy, appears to have eased after a series of policy easing, the Vietnam News reported on Tuesday.

However, short-terms risks to the stability of the banking system still linger on continued sluggishness in the property sector and an economic slowdown, said Fitch Ratings.

The central bank has cut several policy interest rates twice in the last few months in a move to increase liquidity and support the export-driven economy.

Amid aggressive interest rate hikes by the U.S. Federal Reserve, the move has set Vietnam's central bank apart from regional peers, however, exchange-rate stability priorities could limit how much it can inject liquidity without pressuring the Vietnamese dong, said Fitch.

"We expect liquidity to recover gradually over the next few quarters as macro headwinds subside and domestic sentiment recovers," Fitch said in a report.

Banks are still exposed to real-estate loans and bond holdings, however, Fitch expected such debt would be refinanced to avoid crystallizing wider defaults and losses.

"Revival of the corporate bond market to help issuers refinance the total outstanding debt of 239 trillion Vietnamese dong (10 billion U.S. dollars) for the remaining of 2023 will also be an indicator of liquidity reprieve," said Fitch.

Bond redemption before maturity as of May 5 reached 49.5 trillion dong (20.9 billion dollars), up 48 percent from a year ago, while corporate bonds worth 70.95 trillion dong (3 billion dollars) are scheduled to mature in the second quarter with 40 percent of them issued by property companies, said VNDirect Securities.

Meanwhile, bad debts of the local system of credit institutions accounted for 2.91 percent of their outstanding loans by the end of February, up from 2 percent at the end of 2022 and 1.49 percent at the end of 2021, said the central bank which set the target of keeping the bad debt ratio under 3 percent.

The potential bad debts are forecast to mount up to around 5 percent of total outstanding loans due to a real estate slump, said the central bank.

Coupled with lower interest rates, liquidity crunch has eased in recent weeks, but the total lending of Vietnamese banks remained sluggish, hitting a decade-low in April, said Fitch.

According to the central bank, as of April 20, the credit growth in the banking system was up 2.57 percent from the end of last year, lower than the growth of 6.42 percent in the same period a year ago.