The State Bank of Vietnam (SBV) is on the right track with its effort to restructure the banking system, deputy head of the Central Institute for Economic Management Vo Tri Thanh told Nhan Dan (People) newspaper in a recent interview.
*What is your evaluation of the banking system restructuring process over the past time?
Restructuring the banking system is a complex job in terms of institutions and resources for implementation, given the need to restore and maintain macroeconomic stability as well as the effort to reform and push for greater international integration. Therefore, it requires not only the determination and responsibility of the banking sector but also co-ordination and consensus from other ministries and agencies.
Restructuring the banking system includes altering many closely linked aspects - from communications, information disclosure, enhancement of financial oversight capacity, enhancement of management quality (especially risk management and adoption of international practices) to the restructuring of State-owned commercial banks, joint stock commercial banks, financial companies, financial leasing companies, foreign banks and people’s credit funds.
Over the past time, the banking sector has been proactive in implementing the restructuring plan of credit institutions during the 2011 - 2015 period. Although more efforts are needed to carry on with the job, the impressive thing over the past two years is that the SBV has basically achieved the goal of system stability.
Mergers and acquisitions have made a number of banks perform better, prevented market instability and built confidence in the Government’s determination to stabilise the macro-economy.
*However, some hold the opinion that the banking system restructuring process was too slow. What do you think about this view?
As I said above, restructuring the banking system involves a mountain of complex tasks due to its relation to macro-economic stability, the entire economic restructuring process and its wide-ranging impact on socio-economic life. That can be seen in other countries in the world, no matter if they are developing or developed economies.
One more thing that needs to be taken into consideration is the resources for the restructuring of the overall economy and the banking system in particular. In some countries, State funds are provided to support banking system restructuring, but in Vietnam, State funds are not to be used on principle. And every restructuring effort should go in accordance with this principle.
Moreover, a reverse effect should also be taken into account if restructuring is implemented too aggressively, especially when it is not in sync with restructuring in other areas. Otherwise, it may cause instability in the system or make restructured banks fail to perform. A weak bank is similar to a weak body and requires the appropriate amount of medicine and a treatment regimen.
Saying that does not mean that we are hiding the truth, but that we can work out an appropriate measure with the highest consensus to implement the restructuring successfully. There were unexpected complications when the policy was shifted from stabilising to restructuring the economy in early 2011. But in general, the banking restructuring process has been implemented proactively and has followed closely the plan approved by the prime minister. And I think from its experience, the SBV has been able to identify moderate amounts of remedies to realise the three goals in restructuring the banking system, namely making the system healthier, ensuring the stability of the system and not using State funds.
There are two big lessons here. First, during the implementation of the restructuring plan, we need to make a timely summing-up of experience and institutional obstacles so that appropriate solutions can be worked out. And second, there should be synchronous co-ordination between relevant agencies, especially those in charge of restructuring State-owned enterprises, public investment and the banking sector.
*Regarding bad debt resolution, some say that there are still many difficulties, as bad debt is only classified but has not yet been radically resolved. What is your opinion?
Whether we want or not, resolving bad debt is part of the banking system restructuring process. A rapid resolution of bad debt would have a positive impact on both economic recovery and restructuring. However, given limited resources and an incomplete legal framework, the establishment of the Vietnam Asset Management Company (VAMC) was an appropriate choice. In order to expedite bad debt resolution, we need to enhance the capacity of the VAMC, create essential conditions for the operation of a debt trading market and perfect the legal framework of the property market.
So resolving bad debt is the task not only of the State Bank of Vietnam, despite its crucial role, but also of relevant ministries and agencies. A prime example is the relationship between resolving bad debt and legal issues on ownership and transactions on the property market. It also has a close relation to the economy’s ability to recover in general. In my opinion, the SBV, within its mandate, has made a great effort to introduce many measures to resolve bad debt, including the establishment of the VAMC and building a mechanism for its operation.
Challenges remain; resolving bad debt requires time and an appropriate roadmap. But I hope that the SBV can handle the bad debt problem in a more rapid and effective manner as long as the fundamental conditions for resolving bad debt are laid down in a timely manner.
*In order to accelerate the progress of banking system restructuring, which solutions should we focus on?
The SBV has achieved positive results in the restructuring of the banking system and has learned many useful lessons, though challenges remain ahead. The key thing is that the SBV remains steadfast in its goal of ensuring the stability of the banking system in order to build confidence in the market and the people. Confidence in the banking system is also bolstered by other factors including macro-economic stability, gold and currency management, and the balance of payment.
Another key thing is that the banking sector should continue its effort to resolve bad debt and restructure itself. In addition, in a world of turbulence, the sector needs to keep a close watch on the consequences arising from different shocks so that appropriate measures and adjustments can be made.-VNA
*What is your evaluation of the banking system restructuring process over the past time?
Restructuring the banking system is a complex job in terms of institutions and resources for implementation, given the need to restore and maintain macroeconomic stability as well as the effort to reform and push for greater international integration. Therefore, it requires not only the determination and responsibility of the banking sector but also co-ordination and consensus from other ministries and agencies.
Restructuring the banking system includes altering many closely linked aspects - from communications, information disclosure, enhancement of financial oversight capacity, enhancement of management quality (especially risk management and adoption of international practices) to the restructuring of State-owned commercial banks, joint stock commercial banks, financial companies, financial leasing companies, foreign banks and people’s credit funds.
Over the past time, the banking sector has been proactive in implementing the restructuring plan of credit institutions during the 2011 - 2015 period. Although more efforts are needed to carry on with the job, the impressive thing over the past two years is that the SBV has basically achieved the goal of system stability.
Mergers and acquisitions have made a number of banks perform better, prevented market instability and built confidence in the Government’s determination to stabilise the macro-economy.
*However, some hold the opinion that the banking system restructuring process was too slow. What do you think about this view?
As I said above, restructuring the banking system involves a mountain of complex tasks due to its relation to macro-economic stability, the entire economic restructuring process and its wide-ranging impact on socio-economic life. That can be seen in other countries in the world, no matter if they are developing or developed economies.
One more thing that needs to be taken into consideration is the resources for the restructuring of the overall economy and the banking system in particular. In some countries, State funds are provided to support banking system restructuring, but in Vietnam, State funds are not to be used on principle. And every restructuring effort should go in accordance with this principle.
Moreover, a reverse effect should also be taken into account if restructuring is implemented too aggressively, especially when it is not in sync with restructuring in other areas. Otherwise, it may cause instability in the system or make restructured banks fail to perform. A weak bank is similar to a weak body and requires the appropriate amount of medicine and a treatment regimen.
Saying that does not mean that we are hiding the truth, but that we can work out an appropriate measure with the highest consensus to implement the restructuring successfully. There were unexpected complications when the policy was shifted from stabilising to restructuring the economy in early 2011. But in general, the banking restructuring process has been implemented proactively and has followed closely the plan approved by the prime minister. And I think from its experience, the SBV has been able to identify moderate amounts of remedies to realise the three goals in restructuring the banking system, namely making the system healthier, ensuring the stability of the system and not using State funds.
There are two big lessons here. First, during the implementation of the restructuring plan, we need to make a timely summing-up of experience and institutional obstacles so that appropriate solutions can be worked out. And second, there should be synchronous co-ordination between relevant agencies, especially those in charge of restructuring State-owned enterprises, public investment and the banking sector.
*Regarding bad debt resolution, some say that there are still many difficulties, as bad debt is only classified but has not yet been radically resolved. What is your opinion?
Whether we want or not, resolving bad debt is part of the banking system restructuring process. A rapid resolution of bad debt would have a positive impact on both economic recovery and restructuring. However, given limited resources and an incomplete legal framework, the establishment of the Vietnam Asset Management Company (VAMC) was an appropriate choice. In order to expedite bad debt resolution, we need to enhance the capacity of the VAMC, create essential conditions for the operation of a debt trading market and perfect the legal framework of the property market.
So resolving bad debt is the task not only of the State Bank of Vietnam, despite its crucial role, but also of relevant ministries and agencies. A prime example is the relationship between resolving bad debt and legal issues on ownership and transactions on the property market. It also has a close relation to the economy’s ability to recover in general. In my opinion, the SBV, within its mandate, has made a great effort to introduce many measures to resolve bad debt, including the establishment of the VAMC and building a mechanism for its operation.
Challenges remain; resolving bad debt requires time and an appropriate roadmap. But I hope that the SBV can handle the bad debt problem in a more rapid and effective manner as long as the fundamental conditions for resolving bad debt are laid down in a timely manner.
*In order to accelerate the progress of banking system restructuring, which solutions should we focus on?
The SBV has achieved positive results in the restructuring of the banking system and has learned many useful lessons, though challenges remain ahead. The key thing is that the SBV remains steadfast in its goal of ensuring the stability of the banking system in order to build confidence in the market and the people. Confidence in the banking system is also bolstered by other factors including macro-economic stability, gold and currency management, and the balance of payment.
Another key thing is that the banking sector should continue its effort to resolve bad debt and restructure itself. In addition, in a world of turbulence, the sector needs to keep a close watch on the consequences arising from different shocks so that appropriate measures and adjustments can be made.-VNA
