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Bank reforms need supervisory system
A national financial supervisory system with sanctioning authority would minimise risks in the nation's banking and financial industry, said National Financial Supervisory Committee chairman Vu Viet Ngoan at an international workshop on bank restructuring held in Ha Noi yesterday.
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| Transactions are carried out at VP Bank's headquarters. The banking industry is being advised to establish a supervisory system to boost transparency and efficiency. |
"The system would ensure transparency under market principles and contribute to economic development as well as regulating the financial market," Ngoan said.
World Bank country director for Viet Nam Victoria Kwakwa said that Viet Nam was not alone in needing to strengthen its banking sector and that would simply add to the costs of restructuring.
The World Bank would continue to support Viet Nam in meeting these targets, she said.
Sameer Goyal, World Bank country co-ordinator for financial private sector development in Southeast Asia and the Pacific, said the debt crisis and banks' excessive exposure to real estate and foreign exchange risks and loss-making enterprises were a motivation for restructuring.
"The weak capitalisation of banks relative to risk profile has resulted in a fear of insolvency," Goyal said.
Restructuring would help maintain the stability of banking system by ensuring solvency, liquidity and uninterrupted financial intermediation, minimising costs to the central bank, deposit insurers and the Government in the short-term while strengthening the overall infrastructure of the financial system in the long-term, he said.
The financial health of institutions should be reviewed – including capital position, liquidity and profitability – to enhace understanding of specific structural and institutional issues and limitations in risk management systems, governance, internal controls and IT system architecture.
"Once there is a clear overall objective and direction for the restructuring – where you want to go – it is important to understand the nature, scope and extent of the issues – establish where you are starting from," Goyal said.
Choosing options or responses to restructuring depended on such factors as the political economy, scale and severity of the problem, current economic conditions, financial position of the banks and the Government, limitations of the legal and regulatory framework, and the institutional capacity of the involved institutions.
International experience in banking reform showed that restructuring should be accompanied by development of bond and other capital markets for a balanced distribution of risks throughout the economy and diversified sources of financing economic activities.
He acknowledged that Viet Nam's banking sector would face challenges in restructuring since the total banking system's assets were nearly double the nation's GDP.
"Major restructuring may require large resources."
The rector of the College of Economics and Business at Viet Nam National University, Nguyen Hong Son, said international experiences from Indonesia, South Korea, Malaysia and Thailand had demonstrated that high political will was necessary to successfully reform the banking system, as well as public consensus and support.
"Countries which succeeded in restructuring correctly evaluated the situation, and the nature and seriousness of shortcomings in their banking system, and they identified root causes and worked out overall restructuring plans," Son said.
A significant factor resulting in successful restructuring was timeliness and speed, he added.
"Successful countries carried out their plan of action within a year of shortcomings in the system being exposed."
Thailand established an Advisory Committee on Financial Restructuring to provide necessary guidance, while the committee in Indonesia responsible for bank reform was compounded with representatives from a number of state agencies.
Viet Nam should define restructuring as a process of resources reallocation, including financial, operational, legal and structural, to ensure the healthy and effective performance of banks which would, in turn, exert positive impacts on the economy, inducing improved access of businesses, especially small-and medium-sized enterprises, to banking services.
The senior advisor to the chairman at the Bank for Investment and Development of Viet Nam (BIDV), Can Van Luc, recommended that restructuring should combine overall measures such as liquidity support, revised regulations on debt classification and risk provisioning, and increased roles for deposit insurance institutions, with individual measures to help specific banks deal with non-performing loans and meet minimum capital requirements.
He suggested to new regulatory guidance was also needed on buying and selling overdue debt as well as inspection and supervision.
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