Banking restructuring is nothing to be feared

State Bank Governor Nguyen Van Binh tells VIR’s Trang Dung banking system restructuring is something to be embraced with confidence.

What are the initial results of banking system restructuring?

 Basically, the State Bank has been able to control weak banks’ performance through professional measures. Thus, system risks are minimised, political stability and social order have been maintained, and monetary market and credit activities are more positive. Some commercial banks are  merging on a voluntary basis, while restructuring their finances, operations and corporate governance post-merger.

Many weak banks are calling for investment from domestic and international investors to increase their capital, address financial woes and renovate governance systems. In the near future, there will be more voluntary mergers and acquisitions under the State Bank’s strict supervision.

However, it is still doubtful whether mergers are efficient as a merger of weaks banks might give birth to a new weak bank. What is your opinion?

The government and State Bank do not consider mergers as a finishing line or the target of banking system restructuring. Mergers are just one of restructuring measures and in many cases, they are the first step in the sequence of specific measures to restructure banks.

The restructuring must be processed comprehensively in finance, operations and governance by both healthy and weak credit institutions. The roadmap must be suitable with each credit institution’s characteristics and in line with the 2011-2015 banking system restructuring plan approved by the prime minister.

All banks are required to develop and report restructuring plans to the State Bank and their restructuring process will be supervised by the State Bank. Therefore, after a merger, banks must implement specific measures to restructure finances, operations and governance to ensure they meet safety standards.

Principles for handling weak banks include ensuring payment capability, then applying suitable control and supervision measures, conducting voluntary or obligatory mergers, and then restructuring those banks’ finances, operations and governance.

What will the State Bank do to improve bank governance quality after restructuring?

The first thing is to increase the transparency in banking operations through applying new information disclosure mechanisms,  boosting commercial banks’ stock market listing and increasing the publicity of commercial banks.

Secondly, state-owned corporations and groups that are shareholders in the banks must divest and terminate their non-core investment in the banking sector. Thirdly, limit the control and manipulation of the major shareholders in commercial banks, seriously punish major shareholders violating the limit of ownership at commercial banks and punish credit institutions that have illegal cross ownership.

Fourthly, heighten the criteria on governance capacity, work experience and qualifications of credit institutions’ leaders and key managers. Fifthly, implement healthy internal business policies, apply effectively advanced management methods and develop risk management systems in accordance with international standards and principles. Of which, banks should focus on controlling liquidity, credit, market and operational risks.

By 2015, the Basel II standards will be applied in Vietnam’s banking system. Banks must develop internal credit rating systems, classify loans and provisions for risks in accordance with international principles and credit risk levels, improve credit assessment capacity as well as  internal control and audit systems.

To ensure a strong banking system, what are the State Bank’s recommendations to local banks?

Commercial banks should be aware that the safety and efficiency of their activities are the responsibility of banks’ owners and board of directors. Currently, the banking industry is being offered great opportunity for further development, but also faces many internal weaknesses and external challenges.

Restructuring should be viewed as an opportunity to help banks overcome the difficulties and develop a foundation to ensure that banks operate more safely, effectively and efficiently.

Therefore, stepping up restructuring is a strategic task and urgent requirement for each credit institution until 2015. Credit institutions that do not implement restructuring seriously and thoroughly will miss a great opportunity to improve their competitiveness.

The State Bank is ready to apply interventions, including mandatory tough measures  to protect the interests of the people and country, ensuring the safety of credit institution system. The State Bank will strictly deal with weak banks that threaten the safety of the credit institution system.