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Vietnam will have fewer banks in the future
Restructuring commercial banks has been highlighted as the most important task for now. Once the restructuring is completed, Vietnam will have fewer banks than currently, because unprofitable and small banks will be swallowed by others.
Deputy Head of the Banking Development Strategy Department of the State Bank of Vietnam Vu Ngoc Duy said that to date, no commercial bank has been fallen into big difficulties or on the verge of bankruptcy. However, restructuring the banking system still should be considered an urgent task, or Vietnam would “close the stable door after the horse has bolted.”
Duy said that the restructuring process needs to follow a roadmap, under which unprofitable banks will be merged into others, while only the strongest ones can survive.
“When there are many banks, customers have more choices, which forces banks to improve their competitiveness. However, if there are too many banks as currently, this would be a big waste of the resources in the society,” Duy said.
General Director of a commercial bank headquartered in Hanoi also thinks that the existence of too many banks has led to unhealthy competition. He said that banks’ finance reports show a bright picture of the banking system with impressive profits, but this is “just the tip of the iceberg.” However, in fact, a lot of banks have been on tenterhooks since the bad debt ratio keeps increasing.
Deputy Chair of the National Finance Supervision Council Le Xuan Nghia has confirmed that the bad debt ratio has been increasing rapidly, while the fifth-group debts (irrecoverable debts) account for 47 percent of non-performing loans.
Especially, at some banks, the bad debt ratio has exceeded the stockholder equity, while experts cannot see many opportunities to improve the current situation, because the number of unprofitable businesses tends to increase.
“Therefore, restructuring the banking system should be seen as the most important task for now,” Nghia said
A high ranking official of the State Bank of Vietnam has revealed that Governor of the State Bank Nguyen Van Binh has requested relevant departments to draw up the plans on banking restructuring.
The fact that the State Bank of Vietnam makes public the names of the banks that violate the ceiling interest rate policy and the punishments has been described as a “drastic measure”, showing the determination of the central bank to restructure the banking system. The information exposition seems to come contrary to the way of thinking which has existed for the last many years, that banking is a “sensitive business field” and the information about the banking system needs to be kept secret.
Duy, when talking about the “bank filtration” plan, said that commercial banks would be considered in terms of operation scale and business efficiency, while business efficiency should be seen as the most important factor.
“A lot of medium sized banks have the profitability and finance indexes much better than many other old and big banks,” Duy said.
Kieu Huu Dung, former Director of the State Bank’s Department for Banks and Non-bank Credit Institution, has suggested that the State Bank should keep a keen eye on the banks whose big shareholders are economic groups and enterprises.
It is the current mechanism on lending money to shareholders with loosened conditions which is one of the reasons behind the increases of the bad debts. As the bad debt increases, some banks have to increase their offered deposit interest rates in order to mobilize capital to improve their weak liquidity. As a result, interest rate wars have been kicked off, thus causing bad consequences to the national economy.
In related news, according to Chief Inspector of the State Bank Duong Quoc Anh, most of the banks have fulfilled the plan to increase their chartered capital to 3 trillion dong at minimum as requested by the State.
vietnamnet, SGTT
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