(VNS) Standard Chartered Viet Nam general director Louis Taylor spoke to Viet Nam News about the problem of non-performing loans hanging over the nation's banking system and the need for tough political decisions to resolve the problem.
What are the biggest challenges facing Viet Nam's banking system this year?
The biggest challenge facing the entire banking system is the issue of non-performing loans.
Are we successfully dealing with this problem?
Absolutely not. It hasn't even begun. We are talking about the first steps that need to be taken. The biggest step is recognition of the losses and the allocation of those losses. If you want economic growth of over 6 per cent per year sustainably, you have to clear out the old mistakes.
Do you think the Government recognises the magnitude of the problem?
The Government has absolutely said that they recognise the difficulties and I believe them. But the difficulty they also face is the fact that there are political decisions that need to be taken, very difficult decisions. But once they are made, everything else will fall into place and the resolution will be effective.
Non-performing loans are going to take more than a year, and even more than two years, to clear out of the banking system. The asset management company that the Government has proposed to set up, will have a life of five to seven years, we think.
What do you predict for the banking system in 2013?
It's going to be very tough. I think Viet Nam has to recognise that its local banks are more likely to see credit contract in real terms rather than expand over the next two years. If the issue of balance sheets and non-performing loans are not properly recognised, we believe that overall credit will not expand at all. It will be a tough year.
What difficulties has Standard Chartered encountered in light of the global economic situation? How have you overcome them?
Standard Chartered Bank is running the bank globally and with very conservative principles. We are recognised for the capital we have, and we are well-capitalised. We maintain strong liquidity, and we are in a great position with our balance sheet. We suffered all of the conditions that the global economic environment tossed at us like other banks, but we remain in a good shape. And in Viet Nam, we are absolutely open for businesses and we are willing to lend money. We have a good loan portfolio and low non-performing loans because we believe in sustainable management.
What do you predict for Viet Nam's economy next year in terms of growth, inflation, trade and investment, etc.?
We see the Government forecast next year of 5.5-per-cent growth and we agree with that. We see inflation between 8-9 per cent for the year, relatively stable from where it is now although there are risks around food and energy, as always.
And in term of interest rates, we see stability. We believe that the State Bank and the Government have done a good job in achieving economic stability. But unless they deal with structural reform of the domestic economy, the good work they have done with economic stability is minimal.
About trade and investment, we believe that Viet Nam will remain an attractive destination for investment but it cannot effort to fumble the structural reforms needed to make it an even more attractive place in which to invest. The fact that Viet Nam in 2012 has managed to increase exports so far by 18 per cent far exceeds some other traditional exporting countries in Asia.
What do you recommend to the Government in managing the economy in 2013?
I think that they absolutely have the right priority to achieve stability, ensuring credibility in keeping inflation and the currency stable and getting trade in balance. All of that has been fantastic. What we really recommended now are structural reforms, addressing non-performing loans in the banking sector, and reforming State enterprises and improving the efficiency of State investment. All of these things have been spoken about a lot, but we need to see tangible action.
The State Bank may further reduce interest rates this month. What do you think about this?
I am not aware of any plan to reduce interest rate this month. However, I think that the State Bank has been proven itself very good this year at setting interest rates appropriately for the environment. The results have been stable inflation, stable currency and an improved balance of trade. — VNS