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HSBC: Prospects look bright despite challenges
Dinh Duy
Friday,  Nov 4, 2016,17:34 (GMT+7)

HSBC: Prospects look bright despite challenges

Dinh Duy

HCMC – Vietnam’s economic growth prospects remain promising but risks such as public debt, external demand and credit growth may keep the economy from growing at the desired pace in the medium term, HSBC Bank said in a report.

Chief among them is the risk of external demand souring. Vietnam’s trade performance is likely to remain good in the near term but it could slow if key industrial economies fail to gather pace, or if China, an important trade partner of Vietnam, slows.

The burgeoning fiscal deficit is another concern. Government accounts have been overstretched.

Furthermore, public debt is set to reach 64% of gross domestic product (GDP) this year, but the National Assembly has expressed qualms about public debt breaching its ceiling of 65% of GDP, if growth falls short of its target.

To that end, credit rating agency Fitch noted that Vietnam’s rating profile is under strain not only from “rising public debt” but also from “a rapid re-acceleration in credit growth.”

Credit growth has remained robust throughout the year. In August, total outstanding credit growth moderated to the slowest pace in 17 months, but remains elevated at 16.7% year-on-year.

“While increased leverage spurs economic growth, it also adds to the debt burden. However, more than overall debt, it is the ‘bad debt’ that we need to keep an eye on,” the report said.

Vietnam has done much to overhaul its banking system since 2012 after a lending spree and weak controls led to a surge in bad debts. The ratio of non-performing loans to outstanding loans gradually dropped to 2.6% in the second quarter of 2016.

This was courtesy of the Vietnam Asset Management Company, which the Government set up in 2013 to buy the bad debts of banks. However, the underlying credit and associated capital impairment risks have not been fully eliminated, so the settlement of lingering bad debts needs a special policy focus.

Besides, HSBC noticed a government report finds that Vietnam’s economic woes are deepening on the back of low labor productivity and poor competitiveness.

However, the bank said Vietnam does have a few numbers to flaunt. First, after two disappointing prints in the first half of the year, economic growth accelerated in the third quarter, up 6.6% year-on-year.

This year the economy struggled with the worst drought in almost a century. However, there are signs that the effects of the drought are easing, helping to normalize agricultural production, as well as employment and consumption in rural areas.

Earlier this month, Prime Minister Nguyen Xuan Phuc announced that Vietnam was likely to miss its initial economic growth target of 6.7% in 2016. The official annual 2016 forecast has now been lowered to 6.2-6.5%.

This is in line with HSBC’s forecast of 6.2% for 2016 and means that the economy would need to grow by at least 6.8% year-on-year in the final quarter to achieve the new full-year goal. A strong export growth, continued increase in FDI inflows and domestic credit growth should help fulfill the target, the report said.

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