Banking shake-up will not happen overnight

In an interview with VIR, State Bank chief inspector Nguyen Huu Nghia offers perspective on the  major activities of the central bank’s inspectors in 2012 and what to expect for 2013.

What were the State Bank (SBV) inspectors’ achievements in the past year?

Vietnam’s economy grappled with innumerable difficulties and challenges in 2012, posing a threat to growth and macroeconomic stability. However, these were also within the SBV’s expectations from late 2011.

The central bank paid due heed to inspection and supervision activities to ensure the security and stability of the whole credit institution system, striving to rein in inflation and putting the macroeconomy on an even keel.

Last year, SBV’s inspection body launched 731 checks and inspections and sent 6,763 proposals to relevant organisations and state bodies, including proposals relevant to policy and mechanism revisions, gradually perfecting banking sector management policies and regulations. A number of violations at credit organisations were detected, which incurred severe penalties.

Inspectors imposed sanctions on 123 credit entities, businesses and individuals resulting in VND7,277 billion ($350 million) in fines.

Significantly, many shortcomings and drawbacks were uncovered from comprehensive inspections, serving as a base for a credit institution reshuffle in the spirit of the project on restructuring credit organisations for 2011-2015.

How are the non-performing loans (NPLs), which have been likened to clotted blood in the economy, being thinned out?

The above-mentioned efforts have slowed NPL growth. The surge in NPLs has surpassed 8 per cent, per month in the first quarter of 2012, falling to below 2 per cent, per month from mid 2012 until present. In December 2012, NPLs slid 10 per cent. Besides, credit institutions have
scaled-up risk provisioning to better confront bad debts. Scores of credit entities accepted lower profits and dividend payments, and even scaled down pay and bonus of labourers. The unused risk provisioning amount by the end of 2012 was remarkable.

Besides, in late 2012 credit organisations succeeded in tackling a significant number of NPLs. Diverse measures on debt rescheduling helped drive down bad debt rates, paving the way to boost lending and ease firms’ financial burdens.

However, bad debt is an economic issue not entirely caused by banks. To curb it in an effective manner, the SBV needs to closely work with ministries, sectors and the local government to handle synchronised measures from 2013 pursuant to the government’s approved plan to combat bad debts.

How should underperforming banks be tackled?

Streamlining the credit organisation system is one of central tasks of the SBV’s inspection body. Feeble banks have significantly slid in number. Particularly, of the nine weak banks three banks were merged to become one, one was merged into another, one were self-restructured through resorting to support of new capable partners, one bank will be merged with another credit organisation and three have business shake-up plans.

Underperforming banks shall be comprehensively restructured with appropriate steps matching each bank’s specific features, the credit institution system restructuring project’s objectives from 2011-2015 and pursuant to existing laws.

What’s the overall outcome?

The credit institution system’s liquidity was noticeably enhanced to sufficiently meet depositors’ demands, while efforts were made to avert possible massive capital withdrawal of depositors from banks, ensuring social order and security. The performance of weak banks was under the SBV’s close supervision. As of December 31, 2012, credit organisations’ total deposits jumped 22 per cent against the end of 2011. Underperforming banks subject to being restructured witnessed impressive growth in their deposit amounts.

2013 is forecast to be another challenging year, so what is SBV inspectors’ role in weathering the banking sector storm?

Since credit institutions’ drawbacks have yet to be radically settled, management, inspection and supervision of banks remain to be the central task of our inspectors this year. We will strive to tackle these problems face-to-face to partly help unclog the economy.

Accordingly, the inspection body will come up with strong and synchronised measures to streamline the credit institution system pursuant to the prime minister’s approved project, including handling the project on addressing bad debts which got the government’s go-ahead.

After the national asset management company is founded and becomes active, the SBV will embrace the comprehensive appraisal of credit quality for a true financial picture. Particular restrictions and shortcomings of each credit entity will be made clear, from there implementing suitable measures to ensure the system security standards.

The other important task is to basically finalise compiling guiding legal documents to the banking laws and relevant supportive documents for credit organisation restructuring.

We believe credit organisation system stability will be ensured through constant efforts from the part of banking authorities with support from relevant government agencies in parallel to bolstered state management efficiency, order and security in monetary and banking operations.