Run on Vietnam's biggest bank highlights threat to economy

The Telegraph ^ | 8/27/2012 | Ian MacKinnon, Bangkok

[bruinbirdman]

The deliveries of truck loads of money and queues outside branches of Vietnam’s biggest lender, Asia Commercial Bank, ready to withdraw their cash almost as quickly as stocks were replenished were an eloquent expression of the fears stalking the county’s banking system.

Nguyen Duc Kien, a flamboyant tycoon from one of the country’s richest families, was arrested last week

ACB suffered a huge run on its funds by customers this week following the arrest of its co-founder, Nguyen Duc Kien, a flamboyant tycoon from one of the country’s richest families, and then the chief executive, Ly Xuan Hai, who had stepped down.

But ACB’s difficulties – which officials said were under control – are merely a reflection of wider worries about Vietnam’s fragile banking system: that the level of bad debts, the highest in south-east Asia, could imperil Vietnam’s economy.

Vietnam’s central bank said in July that the level of non-performing loans across the banking system stood at 8.6pc, double that previously acknowledged. But earlier, in June, the central bank director Nguyen Van Binh had said it was 10pc, while analysts believe the true figure could be even greater. Among smaller banks some say it might be as high as 50pc.

How, in a country of 90m people once tipped as one of Asia’s star economic performers, did the banks get in such a mess?

In a nutshell, the banks greatly expanded credit on a tide cheap government capital as it tried to weather the global financial crisis by pump priming the economy. Banks offered easy loans were to private individuals and state-owned companies just as the economy began to slow.

Property prices, enjoying such a boom in 2007 that people were queuing in the streets to snap up new off-plan offerings, dropped dramatically. In

[ThanhPhero]

The government could easily trade "đồng mới" new đong for old and knock some zeros off but one thing I noticed in Việt Nam is no one steals money, at least not Vietnamese money. Small children walk around with fistfuls of đồng and no one grabs it. Those 500thou(about $24) bills are not normally seen in trade. You get those when you want to swap in some $hundreds to buy a motorbike or something like that. You never see a worn one. That said I have a couple of 300 đồng and a 200 that I traded a kid a dollar bill for. They are very worn and fragile. Those haven't actually traded for a while. In 2007 the government reintroduced coins in 500 to 3000 đồng. Everyone had them. In 2011 I didn't see any. It is all fiat money with no value in itself and coins are less convenient. The women go to market carrying their money in their hands and coins won't do for that.

I do appreciate the little windows on the bills. It makes them far harder to counterfeit, but then why would anyone counterfeit the stuff?