Hanoi (VNA) - The banking sector’s profits wereanticipated to rise significantly in 2017, driven by the handling of bad debtsand the recovery of the property sector.

This would create room for rate cuts, according to theNational Financial Supervisory Committee (NFSC)’s report launched on December26.

The report on the 2017 financial market predicted that thepre-tax profits of the banking sector would rise more than 40 percent over theprevious year and after-tax profits by 44.5 percent.

Truong Van Phuoc, the NFSC’s Acting Chairman, said this wasthanks to the handling of bad debt, hastened by the National Assembly (NA)’sResolution 42/2014.

The NFSC’s report revealed a higher-than-reported bad debtratio at 9.5 percent, much higher than the ratio of below three percentreported by banks and the ratio of 8.61 percent (including potential bad debtsand debts purchased by the Vietnam Asset Management Corporation) that Governor ofthe State Bank of Vietnam Le Minh Hung reported at a hearing of the NA inNovember.

However, NFSC found that bad debts reduced significantly in2017. Some 70 trillion VND (3.07 billion USD) worth of non-performing loanswere handled in 2017, up 40 percent against 2016, according to the report.

The warming of the real estate market also helped promote thecredit flow, Phuoc said.

The NFSC’s report estimated that credit growth would be some19 percent this year. Total assets of the banking system increased by 17.3percent and the system had good liquidity due to the net purchase of $7 billionby the State Bank of Vietnam to increase foreign currency reserves.

“With better profits, credit institutions will have more roomto reduce loan interest rates,” Phuoc said.

In September, the Government asked the central bank to cutloan interest rates by 0.5 percent by the end of 2017 in an effort to supportbusinesses and fuel economic growth.

However, lowering rates isn’t so simple.

Financial and banking expert Can Van Luc said pressure frominflation next year and handling of bad debts together with high capital demandwould make it difficult to lower rates.

Previously, Hung said lowering interest rates would depend onmany factors, such as the macroeconomic situation, capital demand-supply,exchange rate policies, inflation and system liquidity. He said that loweringrates was the target of the central bank.

The NFSC projected Vietnam’s economic growth at 6.5-6.8percent in 2018, close to the NA’s target of 6.5-6.7 percent.

Dang Ngoc Tu, from the NFSC, said growth rate of 6.5 percentwould be the best scenario, in which there would be little pressure oninflation.

In the growth scenario of 6.8 percent, measures to stimulusdemand must be applied, inserting pressure on inflation in 2018.

The economic growth would benefit from improving exports aswell as a better business climate.

The NFSC said the private sector would continue to be themajor driver for growth in 2018.

However, Industry 4.0 is bringing rapid changes, which wouldbenefit countries with high technology but undermine competitiveness ofeconomies which rely on cheap labour and exploitation of natural resources.

“It time for Vietnam to take advantage of Industry 4.0 toavoid being left behind,” he said.-VNA