The central bank can appoint credit institutions to buy stakes in weak lenders from September 20 in an effort to strengthen the banking system. — Photo misa.com.vn

HA NOI (Biz Hub) ― From September 20, the Governor of the State Bank of Viet Nam could appoint suitable credit institutions to buy stakes in other lenders that are under special surveillance of the agency, Prime Minister Nguyen Tan Dung announced late last week.

The decision was issued in the context that the nation was stepping up efforts to restructure the banking system, an important pillar for propping up the economy when bad debts remained one of the biggest hindrances to national economic recovery.

Dung stipulated that lenders having to sell stakes would be those which suffered losses with values exceeding the values of their equities and reserve funds recorded in latest financial reports. He said any termination of their operations could endanger systematic security.

The Governor will decide how much stake credit institutions should purchase and the State Bank could itself acquire stakes in weak lenders if necessary. The central bank might support the designated institutions through refinancing loans, special loans or by loosening requirements for their operations for a certain period of time.

Divestments would occur when the weak lenders returned to normal operations or when they were acquired or merged, with central bank permission.

"I think the State Bank intervention in fragile banks is reasonable and necessary," independent financial expert Nguyen Tri Hieu told Thoi bao Ngan hang (Banking Times).

Hieu said that choices to deal with weak commercial banks could be to let them seek ways to restructure or bring them under State control. However, in the current context, State interference seemed to be the only way.

Currently few domestic investors dare to invest in weak commercial joint-stock banks, he noted, as bank share prices had slumped deeply, even those of big and healthy banks. Foreign investors were also hesitating in new investments in the face of the bad debt situation.

He said the Government and the central bank could sell their aquired stakes to private or foreign partners when the operations of week credit institutions stabilised. ― VNS