Restructuring banks: who will buy whom?

VietNamNet Bridge – The restructuring of the commercial banking system in Vietnam is no more the suggestion by experts, but it has been decided by the State Bank of Vietnam which has stated that merger and acquisition of banks is inevitable.

Thoi bao Kinh te Saigon has quoted its source from the State Bank as saying that the watchdog agency is completing the strategy on restructuring the banking system, having put forward three possible solutions.

The first solution is that the State Bank will set up more tightened technical requirements on bank operation. It’s possible that the ceiling deposit interest rate and different types of interest rates would be regulated in a severe manner. Meanwhile, the quota for the credit growth rate in 2012 would not be the same for all banks, but would be different depending on banks’ health.

The banks, which cannot satisfy the requirements to be set up, may see their licenses revoked.

Besides, commercial banks will have to clarify the bad debt situation and then try to “clean” the balance sheet with their provisioned money or the state budget

In medium term, the State Bank may request the banks which have a lot of bad assets to increase their chartered capital.

Secondly, the State Bank would encourage banks to voluntarily sell and purchase stakes, or merge into each other to become stronger. If banks refuse to do this voluntarily even though their situations are bad, they would be put under the special control by the State Bank. In this case, the banks may lose the autonomy.

Thirdly, the State Bank may consider buying back some commercial banks to become the investor of the banks, and it may withdraw capital if the conditions are favorable.

According to Dr Tran Hoang Ngan, a member of the National Assembly’s Economics Committee, the total assets of Vietnamese banks are very big, double Vietnam’s GDP, while the outstanding loans of the whole banking system accounts for more than 125 percent of GDP. However, doubts still have been raised about the scale and the quality of the operation of banks.

“The total bad debt ratio reported by commercial banks is 3 percent of the total outstanding loans, while foreign institutions believe that the actual figure is 10 percent,” Ngan said.

Governor of the State Bank of Vietnam Nguyen Van Binh has denied the opinion that the State Bank of Vietnam would define exactly how many banks would have to undergo the restructuring, but the restructuring would be decided after referring to reasonable standards.

Meanwhile, Chair of the National Finance Supervision Council Vu Viet Ngoan, has said that his council is considering ranking banks based on financial indexes.

Le Duc Thuy, former Governor of the State Bank of Vietnam, said that at this moment, some banks are facing problems in liquidity. Therefore, the central bank needs to rescue the banks first, and then uses necessary operations to force the small banks to show the actual situation of bad debts and other financial indexes. This will be the time for the central bank to consider the actual status of the banks and make final decisions.

According to Dr Hoang Cong Gia Khanh from the HCM City Economics – Law University, in the restructuring, the scale of banks (chartered capital, stockholder equity or total assets) should not be the goals, while it is more important to pay attention to the safety and efficiency of banks.

An expert has pointed out that some banks have been pushed against the wall, and they will have to merge into other banks. “The merger process will take place very rapidly, while it will not take several years as many people think, because it is now the most favorable time to do that,” he said.

By the end of 2010, Vietnam had had one development bank, one bank for social purposes, 5 state owned banks, 37 joint stock banks, 50 foreign bank branches, 5 100 percent foreign banks, 5 joint venture banks, 18 finance companies, 12 finance leasing companies, one central people’s credit funds and 1000 local credit funds.