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Overhaul of banks to force mergers
Bank mergers are forecast to strengthen the sector following the Government's push to restructure and improve their competitiveness.
The Government had targeted inflation lower than 10 per cent and would need to restructure the economy and the banking sector would be one of three pillars in the restructuring process, said Le Dang Doanh, former head of the Central Institute for Economic Management.
Doanh said the Government had set a credit growth rate of 15-17 per cent which would classify commercial banks into four groups: healthy, medium, below medium and weak.
Weak banks were already seeing the need to merge to avoid bankruptcy, he said.
The merger of Ficombank, Tin Nghia Bank and SCB was one example that was guaranteed by the Government.
State Bank Governor Nguyen Van Binh said weak banks accounted for 5 per cent of the country's total commercial banks and that they would be drastically restructured with caution and improved safety in mind.
Binh said participation of private sector banks would be encouraged.
Chairman of the National Financial Supervisory Committee Vu Viet Ngoan said it would not cost much to restructure the sector by merging weak banks.
"Credit institutions have established a fund for risk equal to 60 per cent of the country's total bad debts," he said.
Financial and banking expert Nguyen Thi Mui said the participation of private sector banks in the restructuring process would reduce risks for State owned banks.
Mui said State-owned commercial banks' current support for weak banks was carrying risks for the whole system.
Banking expert Nguyen Chi Hieu said the 37 domestic banks now operating would be reduced by one third.
"Risks of some banks would be opportunities for others," he said.
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