Efforts in the bank restructuring process need to push ahead despite encouraging results being seen over the last two years.
If the amount of work already done was the sole criteria then everything looks quite promising for Vietnam’s bank restructuring process. The State Bank of Vietnam (SBV) settled nine weak banks and recently identified two more and six credit institutions in need of restructuring. Meanwhile, the Vietnam Asset Management Company (VAMC) has been established to handle non-performing loans (NPLs), which are considered a serious problem for the banking system as a whole. Impending changes also aim at inviting more foreign participation into the process. But the feeling remains that something is missing from efforts to make the country’s banks more efficient.
Progress thus far
Analysts, in general, believe that the direction Vietnam has taken to restructure its banking sector is correct. “Steps have been taken that are in line with the actual situation the economy is facing,” said Mr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management (CIEM). The very first step was taken by the SBV in assessing the actual operations, asset quality and bad loans of local banks, in order to classify them into different groups. After nine weak banks were identified - SCB, Ficombank, Tin Nghia Bank, Habubank, Tienphong Bank, GP Bank, Navibank, TrustBank and Western Bank - the SBV introduced a number of measures for the implementation of drastic restructuring plans at each.
Overall, leaders at banks considered “weak” seem fairly content with the route the SBV has chosen. Mr Vo Tan Hoang Van, General Director of SCB Bank, one of the first to carry out a restructuring process, believes the steps taken comply with a direction from the SBV and SCB, because of this, has achieved results that have contributed to stabilising the banking system and build customer confidence. “SCB has settled the entire refinancing capital of the more than VND20,000 billion ($1 billion) it borrowed from the central bank, not to mention that the bank is working towards balancing its gold status and restructuring its balance sheet towards safety and efficiency,” he said.
Another is TP Bank (formerly known as Tienphong Bank), which has posted solid results since restructuring. After its restructuring scheme was approved by the SBV in July 2012, the bank’s charter capital has increased from $142.8 million to $264.2 million and its bad debts have fallen from 6.4 per cent to 2.7 per cent.
From the perspective of an independent financial analyst, Mr Le Xuan Nghia, Director of the Business Development Institute and former Deputy Chairman of the National Financial Supervisory Committee, is in an optimistic mood two years in to the restructuring process. “The restructuring of the banking system to date can be considered pretty satisfactory,” he said, adding that the sector had restructured the most compared to the other two pillars of economic restructuring: public investment and State-owed enterprises.
After two years of drastic restructuring, financial capacity at banks has seen improvement while the safety of the banking system as a whole has been bolstered. At the very least, nine of the weakest banks have determined how best to move forward and the SBV, bank shareholders and customers now can let out of sigh of relief that danger has passed, though it is still too early to say whether these banks will develop strongly in the future. “The compulsory restructuring of nine weak lenders has eliminated the risk that they posed to liquidity in the system,” Mr Nghia noted.
Considering the anticipated outcome from restructuring for the 2011-2013 period, Mr Nguyen Duc Huong, Deputy Chairman of Lien Viet Post Bank, believes the most important thing is that the possibility of the banking system collapsing is now zero. However, remaking and modernising the operations of local banks and establishing a strong banking system are major undertakings that will inevitably take time to fully implement. “Banks, after merger and acquisition (M&A) activities, often see a big jump in scale and total assets but I have yet to see much improvement in terms of financial supervision and corporate management,” he said. He also believes that the restructuring process can only work if M&A activities create a real difference in the newly-established entities.