Official: Vietnam urged to restructure its banking system

Vu Viet Ngoan, newly-appointed chairman of National Financial Supervisory Commission (R) emphasised the imperative need to restructure the banking system

Newly-appointed chairman of National Financial Supervisory Commission Vu Viet Ngoan told DTiNews on the sidelines of the National Assembly meeting that the necessity to restructure the banking system was undeniable.

The government’s proposals for the national economy in the second half of this year as well as proposals by the NA’s Committee for Economics all included the restructuring of the banking system. What are your comments on this issue?

Prior to the global economic downturn, Vietnam’s banking system was considered ‘incompetent’. Now, almost all countries in the world have restructured their banking systems in order to strengthen their financial capacity. If Vietnam doesn’t follow suit, it will be left behind.

In the current economic situation, there has been rising worries about a potential domino effect to the banking system. Through the market, incompetent institutions will be excluded, making way for better businesses. For a short term, proper support should be provided to banks, along with tight management in order to prevent possible consequences in case of breakdown.

Are there any challenges to the restructuring?

It’s difficult to restructure any institution but it’s even more difficult to restructure a financial institution due to the aforementioned complications and sensitivity involved. It should be underlined that restructuring cannot be carried out hastily, but it needs a suitable roadmap and a long term plan in order to meet international norms. If not, the restructuring could prove infeasible.

Public concern has been raised over the use of administrative methods or economic and policy-based measures to cool soaring interest rates. What are your comments on this issue?

During the discussions on amending the Law on the State Bank and Law on Financial Institutions, many controversial ideas have been expressed. Some say that tools and policies applied by the State Bank of Vietnam must comply to market rules. While others think that such requirements can’t be realised and prefer administrative solutions, in my opinion I think that administrative measures are still suitable but in the long term, we need economic and policy-based measures.

Although the government requested a reduction in interest rates, results have been far from satisfactory. What are the major reasons for this?

Both the government and the public have called for lower interest rates in order to heighten competitiveness. However, first of all, monetary policies must give priority to taming inflation. High inflation leads to increased interest rates in order to mitigate monetary supply.

In order to lower interest rates, more efforts should be made to attain macroeconomic stability, along with tighter supervision over operations of the banking system. Banks themselves are responsible for managing their costs in order to prevent a driving up of interest rates.

There is concern over the US’ public debt. Some say that the US economy may default on its debts . What effect would this have on Vietnam if this happens?

The US public debt is of great concern as Vietnam is integrated into the world economy and would be affected. A great deal of the government and commercial banks’ foreign currency reserves are in USD, so the incident will have serious consequences for us. However, I do think that the US will resolve the debt issue soon.

What would our response be in such a scenario?

I think we should have a prepared response. I’m not directly involved in the drafting of such a response, so I’m not sure if the State Bank of Vietnam and the Ministry of Finance have considered it.

Vietnam’s public debts are forecast to reach over 58 per cent of the country’s GDP this year. Is this a warning signal?

Public debts internationally aren’t necessarily a prompt for us to adjust our public debts. However, for the long term, this is of great concern. I think that Vietnam’s public debts are still at an acceptable level but for the long term, drastic measures should be applied to prevent it from reaching too high, hindering sustainable development.