Dinh Minh Tuan from the Advisory Council to the National Assembly Committee for Economic Affairs tells Nong thon Ngay nay (Countryside Today) that banking sector reform remains a crucial priority
How do you assess the situation of cross-ownership and the current status of the banking system in general?
The cross-ownership among state-run commercial banks, joint stock commercial banks, foreign commercial banks, capital funds, state owned enterprises and private enterprises has reached an alarming level.
In my opinion, the key attributor to the problem was the government's loosening monetary policy during the five years from 2006-10 which led to the explosion of credit activities.
In order to meet the increasing demand of big credit, credit institutions had to create a network among themselves, or own the banks, to ensure a steady capital supply to their clients. So were the banks.
Due to the pressure for growth, to cut short their administrative procedures, including the evaluation and appraisal of paper work, the banks adopted a tendency to lend money among themselves.
Another attributor was the government's decision to change 13 rural banks into urban banks in three years (2005-07). As a result, cross-ownership between credit institutions became a phenomena manipulating banking activities nationwide.
Though the process of restructuring the banks has been going on for sometime, the problem of cross-ownership and bad debt are at a stalemate.
In your opinion, what solutions do we need to push up the restructuring process?
In my opinions, all parties should make their commitments to ensure a steady short term credit supply to enterprises once cross-ownership is terminated. This condition is very important, at it will enable enterprises to seek new credit from elsewhere. For mid- and long-term credit, it is imperative to review each project to make sure they are feasible and workable.
In special cases, the State Bank of Viet Nam may have to sit with the new or old owners to ensure they follow the government's guidelines.
In addition, it is important to find out why there was a cross-ownership problem and its advantages and disadvantages. Once we know the reason behind the story, it will help us detect the black spots and the white spots in the cross-ownership picture during the process of restructuring the banking system.
For the long term vision, the government should focus more on building transparency in credit and capital markets with low interest rates.
What are the negative impacts of the slow settlement of the cross-ownership on the restructuring process of the banking system?
The biggest impact is the danger of loosing capital value when the cross-ownership is eliminated. In addition, the withdrawal of capital from non-core business by enterprises will then put pressure on the value of the banks' shares on the trading floor.
Other impacts I should mention are the loss of credit suppliers (the banks) for mid- and long-term projects by enterprises. In such a case, the enterprise has already invested quite a large sum into a project, but now it does not have the money to complete it.
In other words, the bank has landed in a bad situation as the bad debts increase. In the other case, a project has already received mid- or long-term credit as it is a highly rated project, but now suddenly the credit agreement is suspended.
In one way or another, the suspension has had a negative impact on the economy in general. — VNS