The priority task when restructuring the commercial banks is to resolve
the bad debts and simplify lending procedures, say economic analysts.
They explain that besides some certain successes
in the integration process, Vietnam ’s commercial banks have several
shortcomings in terms of administration, human resources, rising bad
debts and a low level of liquidity.
now has over 80 banks, an excessive number compared to the economic
demand, which has resulted in some of the smaller banks facing serious
shortages of capital and low liquidity levels.
According to Vu Thi Phuong Hoa from the Institute for Financial
Strategies and Policies under the Ministry of Finance, Vietnam ’s
financial system depends mainly on the banks, which along with
non-banking credit organisations account for 75 percent of the financial
sector’s total assets.
However, after recording
some massive developments, some banks had breached principles of
business administration and risk management, resulting in their
increasing bad debts.
The current macroeconomic
difficulties have raised business debt across the country while the
stagnant stock market and the frozen real estate market have run up even
more bad debt with the banks.
The State Bank of
Vietnam (SBV) estimates that by the end of the first quarter of 2012,
the bad debt rate stood at 3.6 percent, or over 85 trillion VND (4
billion USD). This figure also tends to increase due to the lack of
transparency in financial reports.
Dang Duc Thanh,
General Director of the company ‘Dream House’, says that the banks are
stuck with a lot of bad debts and a lot of it is tied to real estate.
The General Director of Saigon Trade and Production Development, Tran
Quoc Manh, emphasised the importance of solving bad debt before
restructuring the banking system.
to cross the ‘bad debt threshold’ before starting any restructuring and
making the banking system healthy again”, said Manh, adding that “bad
debts are due to weaknesses in both banks and businesses”.
Therefore, the State needs to buy bad debt back from the banks and
businesses, he said, noting that the issue here is how to do this
properly and effectively.
According to Manh, the
State should buy bad debt using market mechanisms, analyse each one
thoroughly and then verify the ‘health’ of each business through the
level of debt.
However, many experts question the
feasibility of the State buying back such a huge volume of bad debt to
make the banking system healthy.
Bad debts are
like “clots of blood” that block the economy’s flows of capital and
despite lower interest rates, businesses still find it difficult to
access capital. Solving bad debt is essential but the banks also need to
remove obstacles for borrowers and “view’ businesses differently.
According to Thanh, in 2007, many oil, gas, and electricity companies
also began to trade in real estate, leading to thousands of real estate
“The most important thing now is to closely control monetary sources and regulate the banks more,” he stressed.
Pham Ngoc Hung, Vice President of Ho Chi Minh City’s Business
Association, stated that restructuring should pay attention to how banks
‘look’ at businesses. The more difficulties the economy experiences,
the more small businesses are affected and they find it even harder to
access sources of capital.
The banks themselves
say that they want to lend to businesses, based on their financial
transparency and how feasible their projects are, but businesses’
financial reports are unreliable.
Vo Thanh Ly,
Deputy General Director of the Mekong Housing Bank says that his bank is
ready to share the economic burden when businesses meet all
requirements laid down by the SBV and the MHB.-VNA