World finance :: Personal finances, Stock markets & Earnings

Refile rapid rise in private sector borrowing bad for growth oecd

´╗┐(Removes extraneous word from headline)LONDON, June 17 Rich countries are at risk of long-term economic damage if lending to households and businesses grows faster than the economy as a whole, the Organisation for Economic Co-operation and Development (OECD) said on Wednesday. The international think-tank said growth in borrowing as a share of the economy brought short-term economic gains but longer-term harm through looser financial regulation, lower credit quality and bank bailouts by the public sector."Over the past 50 years, credit by banks and other intermediaries to households and businesses has grown three times as fast as economic activity. In most OECD countries, further expansion is likely to slow rather than to boost growth," the report said. Increases in household borrowing were the most dangerous, while big rises in corporate bond issuance and bank lending to businesses caused less harm.

Overall, if borrowing's share of the economy rose by 10 percentage points, this tended to reduce long-term economic growth by 0.3 percent, the OECD said. By contrast, rapid increases in stock market capitalisation were linked to modestly faster growth, the OECD said.

The OECD also said that rapid growth in borrowing tended to worsen inequality. Rich people were better placed to borrow to fund investments, and excessive pay in the financial sector also worsened inequality, the report said. The findings chime with an International Monetary Fund report last month. The authors of the IMF report argued that "too much finance" beyond a certain level of financial development was linked to economic and financial volatility.

Since the financial crisis most countries have sought to toughen bank regulation to ensure they do not need to rely on bailouts in a future economic crisis. In 2013, Bank of England Governor Mark Carney said the prospect of Britain's financial sector growing rapidly as it serviced the global economy was not one which should be regarded "with horror". The OECD said macroprudential measures to control lending, reforming too-big-to-fail institutions and tax changes should help to improve the financial sector's contribution to growth.

Vietnam cbank delays rules on bad loan classification

´╗┐HANOI May 27 Vietnam's central bank said it will give banks an extra year - until June 2014 - to apply stricter rules on classifying and making provisions for bad debts, a delay that could prolong the time needed to fix the country's banking problems. In January, the central bank had told lenders to apply new rules as of June 1 for bad debt classification. Economists said the rules could triple the level of non-performing loans (NPLs) from the publicised ratio of 6 percent. The central bank's instruction, named Circular 2, also required lenders to make more risk provisions for credit grants, including credit card debts, investment in unlisted corporate bonds and deposits in domestic and foreign banks, in addition to normal loans, to raise funds to clear the NPLs. On Monday, the State Bank of Vietnam said in a statement that lenders will now have to comply with the regulations of Circular 02 from June 1, 2014, instead of this June 1. The delay aims to enable businesses to access loans, help to boost credit growth, cut loan rates and give banks a chance to prepare for the regulations, the statement said.

Alan Pham, chief economist at fund management firm VinaCapital, said: "This is a regrettable decision, though I understand the reason for the central bank's move."Banks and business associations had called for the central bank to delay the NPL classification rules, citing the country's economic slowdown, enterprises' difficulties getting loans and a large number of bankruptcies. Vietnam has been enduring its biggest slowdown in growth since 1999. In 2012, gross domestic product increased only 5.03 percent due to falling domestic consumption. There were about 100,000 bankruptcies in 2011-2012.

Businesses could not access loans due to their existing debts, while lenders tightened lending rules for fear their bad debts would increase. Vietnam's lending growth slowed to 8.91 percent last year from an average 29.5 percent annual rise from 2006 through 2011. The government aims to accelerate economic expansion to 5.5 percent this year, but economists have said the projection is still optimistic.

The central bank's decision may also affect its efforts to clear the banking system's bad debt burden, said Pham. On May 18, the government gave the green light to the establishment of the Vietnam Asset Management Corp