Incompetent banks should be left to go bankrupt in order to enhance the banking system’s efficiency and ensure the best interests of depositors, one agency has said.
Weak banks should be left to go bankrupt
The National Assembly’s Economics Committee expressed the view at a recent meeting to announce a report on the global and domestic macroeconomic situation in the first half of this year.
Public concerns over huge bad debts
To make matters worse, the figures for bad debts in the banking sector vary.
A banking inspection and supervision agency under the State Bank of Vietnam (SBV) said on July 12 that bad debts at financial institutions nationwide totalled over VND202 trillion (USD9.67 billion) as of March 31 this year, accounting for 8.6% of total outstanding loans.
The figure is higher than the SBV’s recent announcement based on bank reports on their debts, totalling over VND117 trillion (USD5.6 million) as of May 31, 2012, representing 4.47% of total outstanding loans.
The report also quoted the results of inspection of financial reports at six listed banks as of June 30. Total bad debts at these banks reached around VND18.942 trillion (USD907.61 million), accounting for 2.51% of their total outstanding loans.
Navibank recorded the highest rate of bad debts with 3.86%; followed by Vietcombank with 3.47%, MB with 1.82%, Eximbank with 1.73% and ACB with 1.53%.
The committee said that differences in bank bad debts not only triggered concerns among the public and investors over the quality and the transparency of the bad debt system, but indicated incompetence among the SBV’s agencies in managing bad debts.
The lack of clarity also impeded defining the size of risk funds for bad debts.
Inevitable consequences
In order to step up the restructuring of the banking system, depositors should be protected but financial institutions could also be bankrupted if they prove to weak and badly managed.
“Firstly, financial institutions should regularly enhance their risk funds in a bid to prevent bigger losses and reduce bad debts to sustainable levels. Secondly, plans should be made quickly and completely to deal with weak banks,” the committee said.
This is not the first time when a possibility that financial intuitions could go bankrupt was mentioned. Late last year, Vu Viet Ngoan, Chairman of the NA’s Finance and Budget Committee said that there should be a change in thinking about banks being allowed to go bankrupt.
In June 2011, Victoria Kwakwa, Director of the World Bank in Vietnam warned that if weak financial institutions are not encouraged to withdraw appropriately via controllable mergers and acquisitions, it would continue to weaken the banking system and add to costs of restructuring.
She emphasised the necessity of carefully making plans for bankruptcy and restructuring of enterprises, including commercial banks.
In late September 2012, Nguyen Dai Lai, a financial and banking expert, said that if weak banks are not allowed to go bankrupt it would foster possible wrongdoings.
