RETAIL BANKING | Roxanne Uy, Vietnam

Will Vietnam reach the 15-17% credit growth rate target this year?

With various difficulties that abound Vietnam's banking system, is the target even possible?

Oliver Wyman: Jason Ekberg, Consultant
Asian credit markets have been hot in Q1 with issuance volumes up some 30%+ across LC and USD, though we do see volumes slowing given ongoing risk concerns and some bifurcation in the market, i.e., investor appetite for recent Sri Lanka and Indonesian (Celyon, Pertamina) issuance over Vietnam.

What we have to remember is Asian credit markets - in general - are still at an early stage of development vs Western markets. Vietnam’s credit market is particularly at an early stage of development. What this means in practice is that we see Asia issuance either IG or HY (mostly ID and CN issuers). The middle risk rated institutions struggle to find placement in Asia and in West, though later is more due to lack of investor awareness.

To overcome this, it is important that regional issuers have strong support from sovereign issuance, e.g., increasing investor awareness, providing yield benchmark, etc. In the case of the bifurcation I referenced earlier, it is important to note both Sri Lanka and Indonesian governments vs Vietnam are active issuers, which paves the way for HG domestic issuers to access the market, e.g., reference yield curve, portfolio positioning, etc. As such, if Vietnam were able use sovereign issuance to pave the way for corporate credit issuance, this should help accelerate market development.

Regarding the current ambitions, given the early stage development of the Vietnam credit market, it is reasonable that the country could bring a few sizable issuances to the market, being led by sovereign. After all, the country has a few sizable institutions whom potentially could access the USD issuance or possibly regional markets, e.g., RMB, SG, THB. Appreciating we are ½ through the year it does look challenging but moving the needle is easier when you are at an earlier stage of development, i.e., 2-3 deals make the target seem more reasonable.

Standard & Poor's: Ivan Tan, Primary Credit Analyst
We believe that in 2012, Vietnam banks will reverse some of the excesses of the past, which was characterized by unbridled credit growth. The government's policies to stabilize credit growth are showing some signs of success. Loan growth moderated to 10.9% in 2011, about half the government's target of 20%. This was significantly lower than the rapid credit growth that averaged 35% from 2006 to 2010, during which Vietnam's credit-to-GDP ratio soared to 125% from 71%.

We believe that in addition to government intervention, high lending rates of up to 25% have dissuaded borrowers from seeking credit. Tightened liquidity conditions have also crimped the ability of banks to lend aggressively. Going forward, we expect the government to continue pursuing stability over growth. We also expect that overall loan growth could be less than 17% depending on how the government allocates credit growth caps under its proposed banking reforms.

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