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Vietnam Today

ADB to assist a local troubled bank

Released at: 17:00, 11/12/2016

ADB to assist a local troubled bank

Photos: ADB/Duc Anh

The Government will complete the legal framework and restructure the banking sector to protect public interests.

by Duy Anh

A solution to deal with troubled commercial banks has been decided upon, Prime Minister Nguyen Xuan Phuc revealed. The regional development bank is planning to assist the Vietnamese government to solve the problem.

“The Asian Development Bank (ADB) along with a Vietnamese private partner is planning to acquire a troubled commercial bank”, the Vietnamese leader said at the Vietnam Development Forum (VDF) in Hanoi on December 9.

Furthermore, ADB may also introduce partners who are capable of helping Vietnam to settle bad debts and safeguard fragile commercial banks, according to PM Phuc.

Mr. Jonathan Dunn, Resident Representative of the International Monetary Fund (IMF) in Vietnam believes the acceleration of bad debt settlement will help the credit institution system better support competitive private enterprises, and this would bolster growth prospects.

This idea comes just in time. In late October, Deputy Prime Minister Vuong Dinh Hue told a National Assembly (NA) meeting that the government will consider the possibility of letting poor performing commercial banks go bankrupt, instead of assisting them as it did in the past.

The government is determined to restructure the banking system with top priorities being protecting the interests of depositors and preventing the "domino" effect, which happens when one bank stops operation, and others follow, said Deputy Prime Minister Hue.

Since this troubled commercial bank is likely to be rescued, things will look brighter for the settlement of bad debts, a problem which has not yet been successfully resolved.

Overhanging bad debts have been a burden on Vietnam’s economic growth since 2012 when total toxic debts, mostly in the real estate sector, reached VND280 trillion ($12.5 billion), equivalent to 11 per cent of the GDP. 

Last year, in an attempt to consolidate the country's fragmented banking sector, the State Bank of Vietnam (SBV) took over troubled lenders Global Petro Bank (GP Bank), Vietnam Construction Bank (VNCB) and Ocean Commercial Bank.

The buy-out of these troubled banks aimed at helping SBV become fully proactive in reforming them, ensuring safety and stability in the banking system and maintaining political security and the social order, the central bank said in a statement.

The Vietnamese government started tackling non-performing loans (NPLs) in the banking system in 2013 when it officially set up the bad-debt bank the Vietnam Asset Management Corporation (VAMC).

According to a report of the National Financial Supervision Commission (NFSC) on the country's economic situation in the first nine months of the years, bad debts of 19 credit institutions accounted for 55.1 per cent of the total NPLs of the system.

As of the end of August this year, the banking system had reportedly tackled VND548 trillion ($24.1 billion) worth of bad debts, said the central bank, of which almost 42.8 per cent was housed at the central bank-run VAMC.

The government is trying to develop a debt trading market, and complete legal frameworks to deal with mortgages and enhance capacity of the VAMC. Last month, the NA has passed the Law on Property Auctions, which will facilitate bad debt resolution where it involves property assets. Of which, analysts believe that VAMC will be empowered by the Law to auction bad debts and collateral assets belonging to financial institutions.

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