Banking System “Swells” VND33 Trillion in Nine Months

In the dialogue with businesses at the Vietnam Business Forum (VBF) organised on December 3, Deputy Governor Dang Thanh Binh, said that inflation has been controlled to a gradually lower rate for the first three quarters of the year. Expectedly, consumer price index (CPI) will be below eight percent at the year end.

 

Although economic growth (expected about 5.2 percent this year) is not as high as last year, the quality has been more focused, and efficiency of using investment capital has been raised. SBV evaluated that this is a firm foundation for Vietnam to step in 2013 favourably.

 

Relating to SBV performance, Deputy Governor stated that SBV has achieved some successes, such as market stabilisation, and increasing the confidence of people and businesses in Dong currency. Exchange fluctuation is less than one percent and overall balance of payments is expected to be US$eight billion of surplus.

 

Bank credit has started to grow since March 2012, mainly on priority sectors, like agriculture and rural, small and medium sized enterprises, supporting industries and gradually diminished total loans on non-recommended sectors.

 

Regarding bank restructuring, Deputy Governor Dang Thanh Binh said that in the period of 2011-2012 alone, the SBV has focused on assessing, identifying real conditions of operations, asset quality, bad loans of credit institutions; classifying credit institutions; and implementing solutions to improve weak ones.

 

By now, the SBV leaders said that they have basically controlled conditions of weak joint stock commercial banks. Risk of losing system security has been reduced, the money market is operating normally and positively, and discipline in the market is improved.

 

Several joint stock commercial banks have been voluntarily merged or acquired, at the same time, those banks are implementing solutions to restructure financial, operational and administrative activities after acquisition. Many banks have called for capital from domestic and foreign investors.

 

Deputy Governor Dang Thanh Binh said that the near future will see many voluntary cases of mergers, consolidation, and acquisition of credit institutions under tight supervision of the SBV.

 

Regarding to liquidity risk of weak credit institutions, it has been solved and clearly improved, credit institutions have recovered their normal conditions, a mass of withdrawing money did not occur. “The most important thing is that capital in restructured weak joint stock commercial banks is not reduced,” the Deputy Governor affirmed.

 

System liquidity has been improved; the risk of collapse and system security loss has been pushed back. From the end of second quarter of 2012, liquidity in the credit institutions has shown signs of excess.

 

As for financial health, according to the Deputy Governor, despite difficulties of credit growth, institutions have gradually increased charter capital and scale. In the first nine months of the year, charter capital of credit institutions in the system has increased by VND33 trillion, of which state - owned commercial banks increased VND24 trillion and non - state joint stock commercial banks increased nearly VND9 trillion.

 

Regarding bad loan solutions, the SBV has been implementing policies and supports to deal with non-performing loans (NPLs). The NPL rate in credit institutions has increased more slowly since quarter II of 2012. In the first quarter, NPL rate increased by 8 - 9 percent a month, meanwhile to the third quarter, average growth rate is 3 - 4 percent a year. The NPL rate is estimated to decrease to 3 percent by the end of 2015.

 

The SBV has issued policies, requiring reassessment of the ability of repaying clients to gradually overcome difficulties in business and operations, as well as elaborating new regulations on banking security and strengthening supervision and inspection to avoid risks in banking system.

 

At the same time, policies and mechanisms are made available to help banks coordinate with customers and deal with bad loans. Assessing repayment abilities of customers to restructure loans, convert loans into equity capital, continue investing, granting loans to customers with bad loans but having good prospects.

 

Regarding the project of establishing asset management company, the SBV has prepared for submission to the Government. The project refers to issues such as “who will buy NPLs? at which price? financial instruments to deal with them”. Currently, the project has been completed and in the process of waiting for consultation of relevant authorities before being submitted to the Government.

 

Especially, in terms of overlapping ownership, Mr Dang Thanh Binh said that the Law on Credit Institutions in 2010 do not allow credit institutions to own their shares mutually, or subsidiary companies to buy shares of their banks. However, this situation still happens in reality.

 

Currently, SBV has consolidated inspection and supervision against offenders, closely monitored relationship between objectives, which possess overlapping ownership, facilitate credit institutions to divest from other ones. SBV has also strengthened clarification of financial sources of credit institutions and shareholders. Furthermore, SBV has encouraged coordination with the State Securities Commission to oversee sales and transfer of shares in the market.

 

In the process of monitoring and inspection, SBV also recognises that the state of group interests, shareholders’ interests has manipulated some banks and seriously impacts the safety and efficiency of the banking system. Because of that, inspection has been strengthened, strictly punished violations, and required to increase transparency, restructuring, standards of governance and implementation as well as risk management system.

 

In addition, SBV is also revising and editing operating tools to improve management capacity, transparency of interests and relationships of major shareholders, strengthening inspection activities against banks, shareholders and large investors.

 

About operation, in the last months of 2012 and in 2013, SBV has continued its tight and cautious monetary policy, and adopted flexible policy instruments, controlled credit expansion and supplied money appropriately with inflation, speeding up weak bank restructuring and the handling of NPLs.