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SBV considers ways to back weak banks’ restructuring

The Saigon Times Daily
Monday,  Feb 13,2017,20:39 (GMT+7)
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SBV considers ways to back weak banks’ restructuring

The Saigon Times Daily

HCMC – The State Bank of Vietnam (SBV) has said the restructuring of ailing banks in the 2016-2020 period needs a supporting legal framework, local media reports.

At present, the banking system’s bad debt ratio remains high due to various reasons, including hindrances the liquidation of mortgaged assets. However, the SBV said bad debts largely concentrate on three banks acquired by the central bank at zero dong and a number of weak credit institutions.  

Many commercial banks have handled a large amount of bad debts and kept their bad debt ratios low over the past two years. Nevertheless, three banks taken over by the SBV at zero dong – namely Ocean Bank, Vietnam Construction Bank (VNCB) and Global Petroleum Bank (GPBank) – saw no significant improvement in operations.

According to a SBV report, bad debts and non-performing assets of the three banks are big. Bad debt settlement and mortgaged asset liquidation are difficult and have yet to produce good results. Losses at such institutions are many times higher than their equities. 

Although the central bank affirmed that it protects the legitimate rights of depositors and adopts measures to restructure those banks, the banks do not meet requirements on liquidity and operational safety. 

The report said their accumulated losses have edged up due to a wide gap between incomes and operation costs. They have to hike deposit rates to attract depositors to ensure payments and cover operation costs.

The SBV report said weak credit institutions and the three banks do not meet requirements on operational safety and refinancing and mobilization to carry out normal business operations.

The SBV pointed out a number of reasons behind the weaknesses of those banks such as inappropriate regulations to support such credit institutions.

The prevailing regulations enable the central bank to refinance qualified banks. However, refinancing is a short-term tool.

The Law on the State Bank of Vietnam and the Law on Credit Institutions do not have regulations on a special lending mechanism to allow the central bank to offer long-term loans to ailing banks.

The central bank has chosen a couple of big banks to join the effort of restructuring weak credit institutions but the country lacks detailed regulations on this issue.  The SBV said experienced officials have been assigned to help ailing banks with governance and financial matters to generate incomes to fund their operations, cut losses and step up lending.  

However, there is a lack of regulations on the rights and responsibilities of supporters and the wage paying mechanism for such officials.

The central bank said State support is needed to encourage banks to back ailing ones and minimize risks when they do so. 

The central bank is working on solutions and asking relevant agencies to do away with hindrances relating to legal issues to support ailing credit institutions’ restructuring. 

The central bank is also considering bankruptcy and dissolution solutions in case the restructuring does not produce as good results as expected. Those solutions may be added in a law on supporting bank restructuring and bad debt settlement that will likely go before the National Assembly in the coming time.

 

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