Pens sharpened to redraw banking sector

December 27, 2011 | 14:20
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Experts are shaping views to bolster banking sector restructuring.

The National Financial Supervisory Committee (NFSC) recently submitted its banks restructuring plan to the government, which was drafted independently to State Bank banking sector restructuring plan.

Though the content of NFSC plan was yet to be disclosed, according to NFSC chairman Vu Viet Ngoan Vietnam’s future banking system development must be based on four basic principles.

“If banks’ restructuring is not rooted on these four principles, it is likely the [banking sector] restructuring will be repeated at least several times,” said Ngoan.

These four principles are banking and credit institutions should operate in a healthy competitive and transparent environment. The idea of banks never collapsing should be phased out. In the future, banks should be perceived as enterprises which could be driven out of the game once their performances are below par to ensure banking system operates according to international standards.

Second, regulations must be in place to deter risky investments which are beyond control capacity of each credit institution.

Third, there needs to be a set of standards on corporate governance. Each financial institution must outline an effective internal risk management and supervision system which can predict and tackle internal risks.

Fourth, the most important principle was to have in place a powerful national financial supervisory system to protect depositors, he said. The system must be in a position to keep the banking, securities and insurance markets under control, early detect and prevent cross-risks arising in these markets.

Ngoan assumed current banking sector risks stemmed from the cross-ownership model.

In fact, several banks had founded insurance, securities and property firms and lent to them. Insurance firms also opened banks. “If the stock and property markets fell, it could entail cross-risks to the whole system,” Ngoan warned.

The NFSC assumed Vietnam’s economy was too reliant on the banking sector as current bank deposits to gross domestic product (GDP) rate was at 106 per cent, the outstanding loans to GDP rate at around 110 per cent, while stock market capitalisation to GDP rate is only 34.9 per cent.

Another problem is augmenting cross-risks among property, stock and banking markets.

Relative to banking sector restructuring costs, Nguyen Hong Son from National University Hanoi’s Economics University, assumed the cost would be a hefty sum.

World experiences showed that bank restructuring could grab 20-50 per cent of the GDP if it took place after an economic downturn. Industry experts, however, assumed such cost in Vietnam would not be enormous based on current banking sector restructuring trajectory which could last to 2015.

By Thuy Lien

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