Government for restructuring of banking sector

Restructuring of banking sector is now the government’s urgent task that calls for comprehensive appraisal.

The newly-elected Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh believed that the current number of credit entities of 80 is far beyond the absorption capability of Vietnam’s economy. Sharing the same opinion, Dr Vu Viet Ngoan, Chair of the National Financial Supervisory Committee said that the elimination of weak banks is necessary.

Nonetheless, putting an end to these banks would perhaps not be that simple due to the strong support from large economic corporations. Notably, some with significant share ownership at commercial banks have exerted influence over credit granting to these firms’ real estate projects, which has brought about worrying upsurge in the number of bad debts as well as banking operational risks.

Several cases concerning such manipulation are reportedly under investigation, which should be further strengthened so as for interests of an individual or a group to be excluded from the restructuring.

Banks’ rapid growth impossible

In fact, banking sector restructuring is not a fresh issue; rather it has long been taken into account, yet implementation is at snail’s pace. Thus, only comprehensive appraisal of the health of the banking sector which reveals the root of the diseases as well as remedy measures could ensure successful restructuring.

According to the former SBV’s Governor, Cao Sy Khiem, the first and foremost mission is to fully check the entire industry. “It is crucial that the industry’s health be measured, the weaknesses be located and specific measures for each particular banks be indentified”, added Khiem.

Similarly, Dr Vu Viet Ngoan urged for prompt implementation citing a range of restructuring solutions such as raising chartered capital, forcing banks to apply an indicator set for safety operations. Yet, what is urgently needed is bank classification so as for remedy measures to be applied to each bank.

Also, many experts think highly of the banking system security standards enhancement which should follow a clear roadmap. Most of domestic credit institutions are currently at the fledging stage, thus rapid development would probably be unlikely.

Deputy Chair of the National Assembly Economic Committee, Dr Nguyen Duc Kien stressed the importance of improving the relevant legal framework to step up banks’ restructuring including merger and acquisitions.

Kien is against slashing the numbers of banks citing operation efficiency of small-scaled banks which contribute to socio-economic development without merger into a larger one such as small people’s credit funds in several southern provinces as financing farmers loans of VND5-7 million ($240-$338).

“In addition, what matters is the appraisal of the sector’s performance and its contribution to the economy. The vast numbers of small banks are not a threat, but operational efficiency is what makes sense,” Kien emphasized.

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial