Bank restructuring a work in progress

With the merger of Saigon Bank, Ficombank and TinNghiaBank into one entity late last year, the State Bank fired the first salvos for dramatic banking system restructuring. Independent banking expert Dr. Nguyen Tri Hieu puts this process under the microscope and underlines how the government can seek help from foreign communities to accelerate the process.

The banking restructuring process has grabbed the headlines this year. Early this year, the State Bank said that by the end of March, five to eight banks would be merged. There are rumours of a merger between Eximbank and Sacombank, and between OceanBank and TrustBank, and other potential bank mergers.

But, so far only three banks Saigon Bank, Ficombank and TinNghiaBank become one late last year. There are also signs of a merger between Habubank and Saigon Hanoi Bank.

We do not see any other progress in terms of banking restructuring and I feel the State Bank has been slow in terms of speeding up the restructuring process. The jury is out there on the precise reasons for this slow pace.

The banking system currently does not have the liquidity problems as before, though some banks are walking on a tightrope. But bad debts are still an issue and small banks’ weaknesses are obvious.

The government does not want to see any bank fail. I think that is a real challenge for the restructuring process and that may explain why the State Bank is slow in terms of accelerating the process. The State Bank might see problems that we do not  know about and is in the process of resolving the problems before proceeding further.

In this process, I think, some banks that have huge losses, large bad debts, poor liquidity and cannot meet the State Bank’s restructuring criteria should let go.

So far, some banks are not in very good shape, but many of them have reported profits. It is not quite explainable while the economy is not in good shape, customers are in financial trouble, but banks still make money. To be honest, it is tough to reconcile.

We have seen banks report loan losses and bad debts, and the bad debt ratio has increased this year. But, the information is not transparent. The State Bank said the banking system’s bad debt ratio was 3.6 per cent by the end of March, but according to some investigations by independent consulting firms in Vietnam, the rate might be 9-10 per cent and Fitch Ratings stated the rate might be 12-13 per cent.

Under Circular 35/2011/TT-NHNN, effective from April 1, 2012, about 12 financial indicators will be made public from April. But, we are yet to see the indicators made public. If we don’t have accurate information on the banking system or certain banks, how do we know what deficiencies banks have to correct and then be restructured?

When it comes to funds to capitalise the banking system restructuring process, I am sure Vietnam cannot totally rely on its own resources. It needs help from international donors, international agencies and foreign investors and probably many banks including central banks around the world.

International agencies, donors and investors might want to help, and many lenders are waiting to jump into help. But, they need clear and transparent information to accurately access the situation and provide funding or assistance.

The other thing is all banks in Vietnam must improve corporate governance standards. Outside agencies do not know Vietnamese banks’ inner workings and how the banks’ boards of directors (BOD) work.

The more outside people feel Vietnamese banks have improved corporate governance, BODs are transparent and financial reports are transparent, the more they will be willing to help Vietnam.
Vietnam should also learn a lot from how the monetary authorities in South East Asia such as Malaysia, Thailand, Singapore, Taiwan and Korea handled their countries’ situations during the financial crisis in 2007.