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World Bank expert urges banking system reform
The problem of dealing with the mounting level of bad debt weighing on the nation's commercial banks continues to stymie policymakers and affect the liquidity of the banking system, a World Bank expert told a meeting here yesterday.
There were emerging signs of systemic stress, including rapid credit growth, a leading indicator of potential financial crisis, said the World Bank's financial and private sector co-ordinator for Viet Nam, Sameer Goyal.
Banks in Viet Nam had limited buffers to address problems going forward, said Goyal. "There is a need for systemic restructuring to reduce the possibility of a financial crisis situation."
Deleveraging could be significant after credit booms, he warned. The fiscal cost of addressing a banking crisis was also typically high, pointing to the experiences of other countries in the region, including Indonesia, Thailand and South Korea.
The inter-connectedness of State-owned enterprises and banks in Viet Nam was another source of concern, given the weaknesses in the State-owned sector.
"There is also concern about under-reporting," Goyal said. The State Bank of Viet Nam has reported non-performing loans of 8.6 per cent but the actual figure could be much higher by International Financial Reporting Standards.
Government policies for addressing the issue of non-performing loans were inadequate, Goyal suggested, noting that the current restructuring plan for the nation's banking system "provides only guiding principles."
He pointed out several issues that needed further consideration, including a specific timeline for an actionable plan, conditions for merging weak banks, how the various actions would be financed, the role of foreign investors, and restructuring of the Viet Nam Development Bank and Viet Nam Bank for Social Policy. A road map for the Asset Management Corporation was also needed.
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