Viet Nam is to legalise bankruptcy for credit institutions in order to create a moretransparent and healthy money system. — Photo seatimes.com.vn

The Law on Bankruptcy issued in 2004 did not apply to credit institutions, while the amendment for credit institutions was made after the State Bank of Viet Nam had pinpointed nine weak credit institutions and had them restructured, merged with others or even acquired by new owners.

In the first meeting of this year, the National Assembly Standing Committee proposed a law to allow credit institutions to declare themselves bankrupt.

"It's a welcome and unavoidable move," said Cao Sy Kiem, former State Bank of Viet Nam's Governor cum Small- and Medium-size Enterprises Association's Chairman.

For not permitting credit institutions to declare bankruptcy has resulted in many unfortunate consequences, Kiem said.

Not being allowed to declare bankruptcy resulted in low accountability among bankers and below-standard transparency in the banking system, he noted.

Agreeing with Kiem, National Assembly Deputy Nguyen Huu Kien said that precautions in introducing and applying the bankruptcy law to credit institutions should be taken, which would anticipate and settle any concerns among the public.

Under the draft bankruptcy law, the court will process requests on bankruptcies by credit institutions, and final judgments would be made within 15 days following the opening day of processing requests.

Since 1975 there were no credit institutions in Viet Nam that made a public declaration of bankruptcy.

There is also a popular belief that the State and the Government have connections with credit institutions that ensure banks never go bankrupt. In fact, ‘silent' bankruptcies were allowed during the 1990s banking crisis, which reduced the number of commercial banks from 51 in 1997 to 39 in 2001.

"It's time to change the public belief that banks might go wrong and go bankrupt, like other enterprises," said Kiem, adding that Viet Nam should follow international standards in administering their banking system.

By the end of last year, the State Bank of Viet Nam determined that two more weak banks and six credit institutions would be restructured this year, along with nine other banks now being monitored.

Under the banking restructuring plan, initiated last April in a move to improve the resilience of the money system, the central bank (SBV) received proposals from 24 of 25 joint stock commercial banks and had given its approval to 11 restructuring proposals by the end of 2013.

The vulnerable banking system had been on the verge of a crisis following many years of excessive credit growth and easy lending to State corporations, along with cross-shareholding issues.

Financial reform is one of the three pillars in a programme of economic restructuring that Viet Nam unveiled in late 2012. If the deep-seated diseases in the banking system could not be well-solved, the progress of the entire economic reform might face long delays. — VNS