Greater transparency is inevitable in the banking sector, National Advisory Council for Monetary Policy member Tran Hoang Ngan told Thoi bao Kinh te Viet Nam (Viet Nam Economic Times)
The banking information system has always been considered a sensitive issue, but why do you say transparency is inevitable?
Financial institutions and banks are the backbone of the nation's economy. They are the way forward to socio-economic development. As a developing country, this is vital to our national interests, including defence and security.
Now that Viet Nam is a member of the WTO, transparency is part of the course towards development and integration into the international community. In fact it is a requirement to meet international standards in the sector. Relatively, we still lag behind in transparency and accountability in the banking system.
In addition, our country is faced with many challenges due to weaknesses within the banking system, along with negative impacts from the world financial situation. This is one of the main reasons that the banking system has made restructuring a top priority. As the public becomes more informed about what is happening, the issue of transparency will become more important.
Nguyen Van Giau, former Governor of the State Bank of Viet Nam (SBV), once said that the choice of information to disclose to the public can be considered an art. If there is an imperative to have more transparency, isn't there still a balance to be struck between the disclosure of information and the freedom of banks to competitively operate?
I couldn't agree more. For example, the SBV should carefully consider before making public lists of weak banks, and the criteria used is also very important. If the release of such information is not well thought-out, it could have a detrimental effect on the nation's economy.
However, as I've mentioned, information transparency is an inevitable trend. The SBV should speed up its efforts to restructure the banking system, including mergers and acquisitions (M&A). I hope by late June, 2012, the State Bank will be able to publicly release credit ratings for banks.
Nguyen Van Binh, SBV Governor, signed Circular No 35/2011/TT-NHNN, on November 11, 2011, regulating the circumstances under which the State Bank will release information to the public. The Circular takes effects from April 1, 2012.
Under the circular, information relating to monetary and banking activities will be posted online on SBV's website.
Recently, rumours about the banking system have been circulating, particularly about the ongoing restructuring efforts. Do you have any comment on these?
Well, one of the several factors contributing to the weakness of our economy is the poor health of the banking system. Competition in deposit interest rates has led to the higher lending interest rates, putting pressure on the manufacturing sector.
That's why, in my opinion, in the second quarter, the SBV should focus its efforts on M&A to strengthen weak banks, increase liquidity and limit bad debts. This would be a step toward a healthy banking system.
Do you think the banks will play an important role in curbing the inflation rate?
In order to control inflation, there are several factors that must be taken into account. These include commercial banks, ministries and industries. For example, the Ministry of Finance's role is to control and manage market prices, while preventing monopoly. The Ministry of Planning and Investment will have to ensure efficiency for public investment. The Ministry of Industry and Trade will oversee the the supply and demand of commodities as well as their distribution system.
When the interest rate is considerably reduced, depositors will begin to withdraw their money. At that point, banks will face a liquidity problem. But in my opinion, this is not a big worry. In that case, this capital will be moved to production, securities and real estate. This, in turn, would boost liquidity in the economy as a whole, increasing returns for banks and credit organisations. — VNS