Poor banks to be brought to account

In light of newly enacted Circular 07/2013/TT-NHNN, to take effect from April 27, 2013, the State Bank (SBV) for the first time announced that underperforming banks would be allowed to go bust in the worst-case scenario.

The SBV could also demand these banks restructure through stepping into merger and acquisitions with other credit institutions.

“Enactment of Circular 07 is crucial. The new point is that seven banks in the special control group will be subject to merger, acquisitions or even incurring bankruptcy. This will help bolster bank owners’ responsibility,” said chairman of National Financial Supervisory Commission Dr. Vu Viet Ngoan.

Senior economist expert Dr. Nguyen Tri Hieu assumed going bust was the way poor banks should go. Hieu argued in the past year underperforming banks leveraged the SBV commitment not to let any bank collapse and had delayed refreshing their capital reserves. Besides, with state assurance depositors did not have the habit to put money at good banks but prefer to banks offering high deposit rates. This has put the whole banking system at risk.

Chief executive at a Hanoi joint stock bank said more mergers and acquisitions should have been occurred in late 2011 and early 2012 and if this happened the bad debt dilemma would not be as critical as at present.

“Weak banks, not holding strategic importance to the economy and not having equity capital any more, should be considered for mergers, acquisitions or closing the door or taking back their licences,” said HSBC Vietnam chief executive officer Sumit Dutta.

SBV chief inspector Nguyen Huu Nghia admitted the lack of cooperation and a hostile attitude from weak banks’ big shareholders was one of the largest hindrances to banking restructuring in the past year, but the central bank could not intervene due to a incomplete legal framework.
Nghia said Circular 07 would spur banks’ restructuring.

Economic experts assumed the SBV and the government had taken the right approach in 2011 when announcing not to let any banks going bankrupt as at that time banking sector liquidity remained fragile. At this time, banks’ capital drought has remarkably improved.

In parallel to introducing Circular 07, the prime minister decided on forming an Inter-sectoral Steering Committee for implementation of the ‘Restructuring credit institution system from 2011-2015’ project with the participation of diverse ministries, sectors and management authorities of Hanoi and Ho Chi Minh City.

This was viewed as a preparatory step to accelerate banks’ shake-up process and embrace combating bad debts.