Last year saw a number of Vietnamese state-owned enterprise officials being arrested for economic crimes or “irregularities” at the companies under their care. As covered previously on Pacific Money, one of the most shocking such arrests was that of Nguyen Duc Kien, a famous tycoon and founder of one of Vietnam’s largest banks.
Less headline grabbing were the arrests of executives from the Vietnam Bank for Agriculture and Rural Development – also known as “Agribank”. Agribank had been suffering from a dangerously high non-performing loan (NPL) ratio which stood above 6% through the first half of 2012, as general financial distress continued to emerge across the slowing ASEAN country. Agribank, along with fellow state lender the Vietnam Development Bank (VDB), had both undergone inspections which ended in the autumn of 2012. Agribank is one of the country’s largest lenders, and as with other such state-controlled institutions had seen its business diverted for policy, rather than purely profit-oriented purposes.
Another Agribank related arrest was announced last week. This one involved former bank Chief Pham Thanh Tan, who had already (back in 2011) been removed from his post running the bank. The announcement stated that his arrest was related to his irresponsible actions which caused negative consequences during his time as Agribank chief. Indeed, the bank’s new management has been struggling to cut down the NPL ratio, and had apparently taken more than 4 percent of the ratio by the end of 2012.
The arrest is just one more shock as the government tries desperately to revive investor confidence and show that it is seriously tackling the problems of corruption and irregularities that have dogged its state-run sector – not just at the financial institutions.
China finance expert Michael Pettis wrote in a recent note on that country that financial scandals in a closed state run financial system are especially significant, because normally bad lending decisions are suppressed and sorted out behind closed doors. His observations for China are also coming true in Vietnam, which like China also recently underwent a massive credit expansion. Professor Pettis goes on to make the very interesting (for both Vietnam and China) point that:
“The late stages of a debt bubble are almost always characterized by the sudden emergence of financial fraud, and the huge extent of the frauds lead many to assume that fraud was the source of the credit problems, when in fact widespread financial fraud is more typically a symptom of a financial system that has already gone to excess.”
As previously noted, Vietnam and China share many similarities economically, and in particular in the functioning of their financial systems. Whether Vietnam is behind China (going through the struggles which affected China in the 1990s) or roughly in step (like China suffering from the problems of an imbalanced economy and an addiction to over-investment and credit) remains to be seen.
Also on January 23rd Vietnam’s central bank, the State Bank of Vietnam, announced that it was stepping up safety measures in the country’s financial system by requiring lenders to set aside larger provisions against non-performing assets. The overall NPL ratio for the country is still officially over 8 percent, and there remain many who believe the true figure to be much higher. The financial distress was exacerbated in 2012 by growth slowly to just 5%, the slowest rate of expansion in 13 years. Meanwhile annual inflation hit more than 7% in December, and is expected to continue picking up throughout 2013.
One bright spot for 2012 was net exports, which provided a modest boost to growth over the year. To keep the momentum going in 2013, the government has announced a more than 1% cut in the dong loan rate charged to exporters. It is hoped that this will help the country meet the trade ministry’s’ target of a 10 percent growth in trade this year. However the external environment will probably be as, if not more, important in determining if country is able to achieve this goal.
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Kim’s Uncle
@ sideley, nice commentary! I like the except the ministry of propaganda, min. of public security!!! LOL
A lot of little of Viet Cong with red diapers are mad when people mock them like they mock n ridicule their red Chinese comrades in the north!
sideley
Not every well-educated person is a good leader, though don't expect an ignorant peasant to become a good manager, even more of a whole country of 90million inhabitants.
What have done Dung (it turns out that his Vietnamese name means what it means in English) before soaring at the top ?! According to official biography, he joined the Communist in South Vietnam at 17, probably after commiting a crime, (a lot of od south vietnaemse coomi rebels where ordinary criminals, reckless outrlaws who found ideal shelter within Commie insurgent forces), where he became active as nurse, given the conditions in underground tunnels, I bet he was more a butcher than a nurse. Sure that until 1975, the was no way for to educate himself other than through communist endoctrinment sessions.
Whatever he did from 1975 until he was promoteddgovernor of the Central bank of Vietnam (SBV) , didn't prepare him to do that job in the way one sensible person could expect. Admittedly, under his tenure, a lot of vietnamese banking, property and forestry-mining tycoons emerged, all of whom are his cronies. And in 2006, he surged to the almighty post of Prime Minister, don't understand why a few western analysts then betted on him as a reformist, the truth is that the peasant took decision that favourised his family, friends, in spite of Vietnam's interest. What a reform !
The growth vietnam experienced was driven by globalisation trends, people effort, overseas vietnameses, Vietnam's natural resources squandering and…greed. Nothing of his work.
He is partly responsible for the property bubble (while a lot of vietnamese still have no decent habitat) , Fully responsible for the failure of the Vietnamese banking system, the failure of freaky State companies that grew tremendously under his tenure, as a cancer in the Vietnamese economy.
In Vietnam, even the army is doing business, involved into natural resources smuggling and lucrative monopolies….So don't expect the army to be combat ready against China.
Of the present government members, who has decent qualifications and skills to fullfill his/her duty ? Or at least sufficiently educated to understand the stakes of their charge ? Excepting the ministers of propaganda, of public security…
Nguyen Noi Noi
@ Kim's uncle
Thank you my friend. I praise the education system of the west, I don't deny that, I wish my nation and many nations of the world can learn and apply the education system of the west so that we can all benefit from it. But what you label the whole nation, and the leaders as peasant educated is too much of a generalization and too collective. Any sound mind person would avoid being collective and generalizing. If you are a politician you will not get vote. If you are a professor you will be dislike. If you are a trade person you will go bankcrupt… A person can be highly educated but it is not so sure he or she can function properly or a healthy member of a society. Remember Professor Ted Kaczynsky one of the best mathematician from Berkely University, yet he turn out to become a mail bomber. I can tell you many more of the highly educated but turn out to be not healthy. By the way you are in graven mistake as you assume too much.
Have a look closely my friend. The way you write your coment indicates to me and the readers that you are not that cool headed person. Please do not be so mouthful and boastful. Anger, hatred, name calling, belittling others only reveal the wretch from your inner man.
Nguyen Noi Noi
@Kim's uncle
With your generalization indicates your education is a mere sucker.
Kim’s Uncle
What I said is true! You can't refute or deny it. I think you and your VC cadres should worry about your own education! LOL Most of your Commie leaders didn't even complete primary school education so why they know anything about modern banking practices? :) Like say for example do they even know what fractional reserves is? How about fiat currency? The quantity demand for money: is it elastic or inelastic? What is the velocity of money? What is the quantity theory of money? I think my education level is broader and deeper than any Viet Cong on the face of the earth! But who can argue the success of Vietnam under Viet Cong, right? It is after all ranked at 163 in term of GDP per capita out of 200 countries. I think most people find it humorous in the fact that Viet Cong would question another's education while not providing any kind of proof of his own education kind of ironic. Clearly, any honest person can discern from my grasp of knowledge on finance, in addition to my vocabulary and the diction I use it to communicate it that I am indeed, educated. What can you provide?
That 's the wonderful thing about free speech, it provides the forum to unmask the education level of VC for all to see in front of the whole entire world! That's the problem with Viet Cong, they do not think they are fools or miseducated but the world can see that they truly are!
Who really got "re-educated", the South Vietnamese who believed in free enterprise and capitalism or Viet Cong cadres who shout Marxism, Leninism, and Ho Chi Minh 30 + years ago but now invite the same capitalists from S.Korea, Singapore, Taiwan, USA, Japan, and France back into Vietnam because their Soviet style economy was a shamble? LOL.. I think South Vietnamese had the last laugh!
Kim’s Uncle
What do you expect from a bunch of peasant educated cadres?