Vietnam - Central bank vows not to let any banks out of control

by lexie Tue Oct 25, 2011 11:45 am

October 25, 2011

Central bank vows not to let any banks out of control

Weak commercial banks’ problems have become more serious, especially the problem in liquidity. However, the State Bank of Vietnam has affirmed that it will not let any commercial banks collapse.

Director of a joint stock bank said that his bank still cannot take back the money it deposited at some other banks. The banker said that some banks have nearly stopped lending. The situation has been lasting for one month, and weak commercial banks have shown themselves in their true light.

In a notice released recently, the State Bank admitted that some commercial banks have faced the capital imbalance and met liquidity problems. However, the State Bank has affirmed that it will not let any banks get collapsed.

Dr Cao Sy Kiem, former Governor of the State Bank of Vietnam, said that in the immediate time, the central bank can take temporary measures to give liquidity support to the banks with good profiles.

In long term, the State Bank needs to clarify banks based on their health and apply the support measures specifically designed for banks. If the banks cannot recover even with the support, they will be merged into other banks. Especially, in the worst case, dissolving the banks would be a scenario to be thought of.

However, a former leader of the State Bank of Vietnam thinks that it is now not the right time to shut down any banks.

“The most important task for the central bank now is not letting any banks fall out of its control. Let’s wait for suitable moments to treat them,” he said. “Bank restructuring will be a long process, while the things that need to be done right now are to make the banking system healthier and prevent bad debts.”

Former Governor of the State Bank of Vietnam Le Duc Thuy said that there are both strong and weak banks among joint stock banks. Therefore, it is necessary to examine every bank to give reasonable prescription.

“It is now the right time to carry out a bank restructuring and the national economy restructuring as well. However, the restructuring cannot be done within a short time, and it is necessary to take wise moves in the process,” Thuy said.

Financial experts think that there are about 10 weak banks that need restructuring. Of course, no bank wants to be swallowed by another bank after investors had to spend big sums of money to set up the banks. However, analysts say the pressure on the banks has become harder.

In fact, the State Bank of Vietnam has many experiences in merging and dissolving banks. In the past, when Thuy was in his position as the Governor of the State Bank, 17 joint stock banks were dissolved and merged into others, which both served the purpose of restructuring banks, and ensured the safety for the whole banking system.

Sources say that some big banks are attempting to swallow some banks which they believe have problems in liquidity. However, the banks’ managers say that the merger would not occur without the cooperation of the two parties, especially when the legal framework for merger and acquisition in Vietnam remains unclear.

In the current circumstances, experts say, the decision not to let any banks get collapsed proves to be a reasonable decision. However, they believe that in order to successfully fulfill the task of restructuring banks, the State Bank should treat weak banks with a heavy hand.

For example, the State Bank can set up a special taskforce in charge of supervising the operation of the banks weak in liquidity, and only allow the banks to collect debts and not to allow them to continue lending. Especially, in special cases, the central bank can put the banks under its special control. In this case, the problematic banks would think of merging into other banks themselves.

http://www.vietfinancenews.com/2011/10/central-bank-vows-not-to-let-any-banks.html