The carrying out of bank restructuring in Vietnam is going ahead at a very slow pace, said the World Bank.
Interest groups have been a major obstacle to the banking restructuring plans
Of the challenges that have faced restructuring plans, interest groups have been a major obstacle, as enterprises still have stakes in different banks, the institution assessed.
The bank emphasised the necessity to adequately estimate potential costs of restructuring and to mobilise sufficient resources to carry out the roadmap.
As a result, if incompetent financial institutions are not encouraged to reasonably pull out from the market via mergers and acquisitions or by filing for bankruptcy, they will continue to weaken the entire system and may drive up the cost of restructuring, the WB warned.
In order to prevent such a situation, it is vital to build a contingency plan for a possible crisis, they said.
According to the bank, more efforts should be made to enhance transparency in order to minimise risks and negative impacts of a lack of information.
“The current legal framework for the banking system has yet to meet international standards. A regulation on corporate bankruptcy and restructuring should be carefully studied,” the bank noted.
In recent years, operations inside the banking industry have been significantly affected by economic instability and changes in monetary policy.
High inflation has resulted in a big gap between deposits and loans, while 90% of loans amid banks were short-term, at 30 days or less.
Negotiable interest rates and money lending among banks became standard practice before the State Bank of Vietnam issued Instruction No. 02 to tighten control over such activities.
The WB worried about the increasing amount of bad debt at banks over recent years. The ratio of bad debt to assets had increased from 2.2% in late 2010 to 3.6% in March 2011.
However, the real figure may be much higher if international accounting standards were applied, the bank warned.