Industry players are scratching their heads over how to best handle the local monetary market in 2012’s remainder.

National Monetary Policy Advisory Council member Le Xuan Nghia said the central bank had done a smart job in the first six months which had created better bank liquidity, sharply sliding interest rates and stabilising the foreign exchange market.

Restoring monetary market order had lessened investors’ concerns with HSBC Vietnam deputy general director Pham Hong Hai finding that foreign investors were showing growing attention towards Vietnam’s capital market.

“The efforts to tighten dollar-denominated lending, effectively govern money flows through using flexible tools and ensuring transparency in monetary policies and forex market information disclosure have yielded dividends,” Hai said.

To support growth targets this year, Nghia said accelerating banking sector restructuring, particularly tackling bad bank debts were of great importance.

State Bank figures show that the banking sectors’ bad debt currently occupied around 10 per cent of banks’ total outstanding loan balances.

“This is a clotted blood in the body which must be removed radically through surgery, not through taking pills for it to thaw gradually,” said Nghia.

“The most viable solution in current context is to form a specific asset management company as proposed by the State Bank. That is the way many countries had succeeded with after 2008 crisis. Further studies will be needed to make it work in Vietnam’s context,” Nghia added.

Hai stressed on the need to quickly addressing banks’ bad debts alongside bettering governance standards to deter new bad debts from arising.

“As Vietnam’s economy has now been in a more stable footing it is important to gradually remove State Bank’s stop-gap administrative solutions previously applied to create equal playing ground to banks,” said Hai.

Vietnam Investment Review