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Central bank to keep close eye on banking sector restructuring

Update: June, 25/2014 - 08:52
Bank staff checks notes at the Dong Nai Brach of the Viet Nam Joint Stock Commercial Bank for Industry and Trade. The State Bank will continue to monitor credit institutions in the coming months. — VNA/VNS Photo Thanh Vu
HA NOI (VNS) — The State Bank of Viet Nam's Governor, Nguyen Van Binh, has said that he would continue monitoring credit institutions in the coming months.

Binh delivered the message in response to concerns from National Assembly deputies about the next stage of the restructuring process of the nation's financial system, considered one of three pillars of the economic reforms unveiled in late 2012.

The two other pillars are public investment and state-owned enterprises. If the deep-seated diseases in the banking system are not properly resolved, the progress of the entire economic reform might face long delays, said officials.

NA deputy Tran Hoang Ngan from HCM City , along with NA deputy Tran Ngoc Vinh from Hai Phong City, said that the process of restructuring commercial banks signalled positive results, including the handling of bad debt.

"At the first stage, those [merger and acquisitions, and restructuring] have helped banks get back on track," said Vinh.

According to the central bank, the safety level of the nation's banks has improved. Further, restructuring has reduced the number of banks by seven. Banks now are likely to be more competent after withdrawing capital from non-core businesses.

Governor Binh said that he would carefully watch credit institutions that have received approvals for their restructuring plans, to assure their plans are completed on time or to handle emerging issues in the time before 2015.

The banking restructuring plan, initiated last April in a move to improve the resilience of the money system, will move ahead to improve both the size and quality of banks' equity and to eliminate businesses with small profits.

The vulnerable banking system had been on the verge of a crisis following many years of excessive credit growth and easy lending to State corporations, along with cross-shareholding issues.

Transparency

As a step in creating a more transparent and healthy money system, the newly-amended law on bankruptcy now makes it legal for credit institutions to declare bankruptcy.

The amended law, which was passed by the National Assembly last week, will come into effect on January 1 next year. The Law on Bankruptcy, issued in 2004, did not apply to credit institutions, while the amendment for credit institutions was made after the State Bank of Viet Nam had pinpointed nine weak credit institutions and had them restructured, merged with other banks or even acquired by new owners.

Once the central bank stops special controls and recovery measures at a credit institution, a group of shareholders, who own 20 per cent or more of a general stake at the credit institution, has rights and obligations to initiate legal actions to allow the institution to declare bankruptcy.

Credit institutions also have obligations to submit inquiries for bankruptcy when it is necessary. If credit institutions do not do so, the central bank will move for the institutions being declared bankrupt.

Asset classification will follow in the order of importance: as they must pay expenses, salaries, job-leave allowances, insurance and other benefits of labourers subject to agreed contracts, deposits, and other financial obligations.

Cao Sy Kiem, Small and Medium-size Enterprises Association's Chairman, said that bankruptcies will be a welcome and unavoidable move.

For not permitting credit institutions to declare bankruptcy had resulted in low accountability among bankers and below-standard transparency in the banking system.

Since 1975 there were no credit institutions in Viet Nam that made a public declaration of bankruptcy.

There is also a popular belief that the State and the Government have connections with credit institutions that ensure banks never go bankrupt. In fact, ‘silent' bankruptcies were allowed during the 1990s banking crisis, which reduced the number of commercial banks from 51 in 1997 to 39 in 2001.

Experts have said it is time to change the public belief that banks have problems and declare bankruptcy, like other enterprises, and follow international standards in administering their banking system. — VNS

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