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Vietnam needs to tackle bad debt
Publication Date : 10-10-2013
The task to reduce non-performing loans (NPLs) and increase charter capital as well as complete basic ownership structure of weak credit institutions would be given priority in the period of 2013-14.
The advice was made by Le Xuan Nghia, member of the government advisory board and former deputy chairman of the National Financial Supervisory Committee.
Addressing the conference entitled "Movements of macro-economy and prospects of Vietnam's bank restructuring process" held in Ha Noi yesterday, Nghia said the basic task for bank restructuring last year was to fundamentally ensure liquidity and handling weak credit institutions.
"After two years of restructuring, the system's liquidity was ensured. The State Bank of Vietnam (SBV) has partially resolved NPLs," he said.
He added that the central bank has handled eight out of nine weak credit institutions.
However, he said large and prolonged cross-ownership hindered the improvement of governance and risk management in a number of commercial banks.
"The reason was due to lack of transparency about the origin of contributed capital and sanctions to thoroughly handle ownership matters," he said.
He proposed to strengthen supervision and discipline and transparency of the banking system in general and sales of debts in particular.
It is suggested to relieve concerns of banks and enterprises when selling NPLs to the Vietnam Asset Management Company (VAMC).
The country should have more financial sources besides special bonds to handle NPLs. For example, government bonds or sale of State assets including divestment, sales of State enterprises and real estate to provide capital support for VAMC.
Sharing the ideas, ADB's chief economic Dominica Mellor said the solutions for banking restructure in Vietnam has been on the right track.
However, bad debts have been an obsession for the economy and needed a high level of consensus from the government and authorities.
Dominic said implementing NPLs handling should be rushed, as NPLs would cause instability and risks for the economy.
The process is faced with challenges due to a shortage of safe financial resources, an underdeveloped NPLs trading market, lack of legal framework for foreign investors to safely enter the market, and cross ownership.
Tran Phuong, the Bank for Development and Development of Vietnam's deputy general director, said figures released by credit institutions showed that the NPL ratio was 4.58 per cent at the end of July, rebounded after two consecutive months, and increased 0.28 per cent compared with the beginning of the year; and the scale of the bad debt for the whole system requires a huge resource for treatment.
Phuong said the more extensive economic integration process of Viet Nam together with the participation in Trans-Pacific Strategic Economic Partnership Agreement (TPP) and joining in the Asean Economic Community (AEC) would bring huge benefits for Vietnam on trade, investment and technology, but also the requirement of restructure, enhancement of transparency and competitive capacity of the economy would become more urgent for the effective integration process.
Vo Tri Thanh, deputy director of the Central Institute for Economic Management (CIEM) agreed, saying that Vietnam's financial sector shared several similarities with that in Asean and East Asia in terms of bank-based system, underdeveloped and thin bond market.
"Vietnam can learn many things from experience in the region. In the short-term and medium-term, the key is to restructure the banking system. In longer term, it is to have a more balanced financial system, aiming on development of a well-functioning bond market," Thanh said.
Experts said evolution of the economy has a significant effect on banking activity. Especially in transforming an economy, as in Viet Nam credit channels through banks has been the main source supplying funds to the enterprises.
Businesses should implement drastic restructuring including strategy, finance, corporate and governance. They should also maximise IT application and improve business analytic.