Complete Legal Scheme Needed

11:19:49 AM | 7/28/2014

According to statistics, in the period of 2011-2013, eight weak banks were restructured; one weak bank was self-restructured. For the first 6 months of 2014, the State bank of Vietnam (SBV) approved 6 out of 25 restructuring projects of commercial banks. State owned commercial banks and joint stock commercial banks have basically met requirements of capital adequacy rate (CAR), while only financial companies and the Co-operative Bank of Vietnam have had a strong reduction of CAR after being restructured.
A core mission in 2014 of Decision 254 is basically completing the restructuring of credit institutions aiming to enhance financial capability and strength. Of which, the major task is to deal with bad debts of credit institutions. However, objectively assessed, the banking system has just only “cleared away” most bad debts to Vietnam Asset Management Company (VAMC) which is considered a “storehouse” of bad debts for credit institutions.
According to VAMC’s report, by the end of May 2014, the company had purchased VND45,200 billion from 2,039 bad debts of 35 credit institutions by special bonds equivalent to VND37,745 billion; however, by now it could not sell any of them. With the current mechanism, after buying bad debts from credit institutions, VAMC is authorized to collect bad debts. Therefore, financial restructuring of credit institutions through recovering bad debts is still stagnant.
According to a research group of Financial – Banking Institution, National Economic University, merging banks have had not any new improvement, solely in process of preparation. For the first 6 months of 2014, there has been only an official merger of Vietnam Prosperity Bank (VPBank) and Vietnam Coal – Mineral Financial Company. Accordingly, VPBank is responsible for taking over all legal assets, rights, responsibilities of the Vietnam National Coal – Mineral Industries Holding Corporation Limited in Vietnam Coal – Mineral Financial Company; VPBank will transfer all of its consumer credit operations to the new company. Three other merging cases (SouthernBank and Sacombank; Maritime Bank and MDB; MaritimeBank purchased all stocks of Vietnam Textile and Garment Group in Textile and Garment Financial Company) are only in preparation and have not received decision from the SBV.
Statistics of the group has shown that business results in QI of banks after restructuring reveal instabilities like reduced profits, increased bad debts and slow credit growth.
The research group has tracked the statistics of banks restructured in the period of 2011-2013: Saigon – Hanoi joint stock commercial bank (JSCB) after merging with Hanoi Housing joint stock commercial bank; Saigon JSCB based on merging of First Joint Stock Commercial Bank, Tin Nghia JSCB, Sai Gon JSCB; independently restructured Tien Phong JSCB; Ho Chi Minh Development JSCB after merging with Dai A JSCB; and PVCombank after merging with PVFC and Western Bank.
Accordingly, in QI/2014, loans for customers were strongly reduced, and credit growth rate decreased by 12 percent over the same period of 2013, the sharpest reduction for the last 10 years. Most commercial banks admitted that capital overflow, lack of capital in enterprises and credit for enterprises are headache – making problems for banks. They give many reasons, mainly the fear of not recovering debts after granting enterprises and bad debts will pile up bad debts.
Total assets of restructured banks were also reduced by 13.91 percent over the same period of 2013, equivalent to over VND13 trillion. The group analysed that the condition was proper because banks were in the process of restructuring; especially the beginning of 2014 saw the second wave of merging small banks into larger ones, which shrank the averaged assets of restructured banks. However, the rate of chartered capital over total assets still increased by 1.36 percent over 2013 to 9.88 percent, which revealed restructured banks have been financially independent and possessed financial safety.
Besides, the rate of profits over total assets was slightly reduced, from 1.78 percent in QI/2013 to 1.63 percent this year. The average rate of returns over equity (ROE) showed neither reduction nor strong growth (only up 0.11 percent, from 1.1 percent to 1.21 percent). The same trend was seen in returns to assets (ROA). Accordingly, ROA in the QI/2014 increased only 0.12 percent, slightly up 0.03 percent over the same period 2013.
According to the research group, assessing 7 banks after acquisition and merging has shown that these banks have had different profitability and productivity. Therefore, it is important to choose proper restructuring schemes and comprehensive implementation.
However, they assessed that to push implementation of bank restructuring in the period of 6/2014 – 12/2015, Vietnam must complete its legal scheme for restructuring, including completing mechanism and policies on handling bad debts and VAMC’s operations; completing legal mechanism for M&A of credit institutions, cross possessing in commercial banks, stock possessing room for foreign investors. Especially, Vietnam should construct supporting mechanism and policies, especially on financial resources for restructuring banks; and completing intervening mechanism for the State to handle weak credit institutions.
Quynh Anh