Viet Nam expected bad debt in the banking system to reach 3.5% of loans by the end of 2008, up from 2% a year earlier, State Bank of Viet Nam Governor Nguyen Van Giau said.

“Vietnam’s economy in 2008 had to cope with not only the very unpredictable developments in the global economy but also numerous internal difficulties including high inflation, a record trade deficit and continuously declining stock markets,” Giau wrote in a report to the government seen on Monday.

Giau forecast 2009 would be even more “challenging and difficult” for the economy as well as the banking sector as both savings and investment were expected to slow.
Last year, Viet Nam clocked 8.5% growth and was a darling of the investment community, but the pace slowed to 6.23% this year.

Faced with the global slowdown, Hanoi has cut its growth forecast for next year to 6-6.5%. The IMF sees the Southeast Asian economy slumping to 5% in 2009.

“Next year’s monetary policy will continue to pursue the objective of preventing an economic slowdown and controlling inflation at a reasonable level,” Giau said, adding that banks were under a mandate to meet funding demand especially from exporters and small businesses.

Giau did not provide the value of the bad debt in the banking system, but last month Deputy Governor Nguyen Dong Tien said total non-performing debt as of the end of September was 35 trillion dong ($2.1 billion), or 2.92% of overall outstanding loans. ($1=16,984 dong) (Reuters)