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Saturday, July 13, 2024

Flaws in bank restructuring found

The Saigon Times

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HCMC – Flaws in the restructuring of banks in Vietnam have been exposed by a recent investigation conducted by the Government Inspectorate.

The report highlights mismanagement, weak restructuring plans, and an increase in bad debt during the period between 2013 and 2017.

The investigation found that nine banks were identified as “weak and in need of restructuring,” with Phuong Nam Bank, VietABank, and National Citizen Bank (NCB) having non-performing loans exceeding 10%. NCB stands out with a concerning 32.6% ratio of bad debt.

However, instead of taking appropriate action, the State Bank of Vietnam (SBV) instructed these banks to develop their own self-restructuring plans.

Further scrutiny uncovered violations of regulations during the formulation of restructuring plans. HDBank’s plan was approved without addressing outstanding capital contributions and excessive share purchases in affiliated companies. ABBank’s plan was endorsed without completing divestments from subsidiaries and associated companies. Sacombank’s merger and restructuring violated cross-ownership rules with Kien Long Bank and exceeded the prescribed limit of capital contribution in a seafood trading company.

The implementation of restructuring measures in Sacombank’s plan faced limitations, deficiencies and risks. These included the slow recovery of VND934 billion from individual stock repo transactions, inaccurate determination of asset values during the merger, low estimated interest recoveries, and delays in settling authorized assets due to inadequate legal documentation.

The assessment of bad debt was also found to be inaccurate, with improvements in reported ratios largely attributed to the sale of bad debt to the Vietnam Asset Management Company (VAMC), accounting for nearly 43% of total processed bad debt during the period.

Incomplete and inaccurate data on bad debt, debt classification, and debt group transfers were also highlighted as a concern. For example, Sacombank failed to transfer a debt group involving a VND262 billion loan from Duc Long Gia Lai Company, despite recommendations from auditors.

The Government Inspectorate has recommended that necessary actions be taken by the Prime Minister to address the flaws and hold those responsible accountable. The central bank is urged to review and strengthen its institutional framework, enhance management and supervision, and improve restructuring plans with a focus on resolving bad debt.

Banks themselves are required to address their shortcomings and violations, while VAMC needs to reassess its role in handling bad debt, rectify practices in debt purchasing, and address any identified violations.

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