It is better to give "green light" to banks bankruptcy than not letting them fail. – Photo bizline

(Biz Hub) Many speakers at the Autumn Economic Forum, which was held in the northern province of Ninh Binh late last month, said that the banking restructuring process in Viet Nam was going slow. Do Thien Anh Tuan, an expert of the Fulbright Economics Teaching Programme, speaks to VTC News about the issue.

At the Autumn Economic Forum, several experts said that the process of restructuring the banking system was slow, and that the results of weak banks were yet to come up to expectations. What is your view?

Reducing the number of commercial banks just shows how many institutions we have reformed. It isn't necessarily synonymous with a measure to enhance the quality and capacity of the banking system. Merging two banks with equities of VND3 trillion each doesn't mean that the new bank, with an equity of VND6 trillion, will become stronger.

The mergers of fragile banks, which were implemented over the past few months, have reduced the number of lenders in accordance with the State Bank of Viet Nam's Project 254 on banking restructuring. But they have apparently had insignificant impact on improving the health of the merged institutions.

What should the banking industry focus on in the coming months to enhance the quality of restructured banks?

A variety of measures are needed, but there are several aspects that we should take note of in the short term. First, we should speed up the progress of debt resolution to boost the recovery of banks' capital and their asset quality.

Second, we should change our thinking in dealing with weak banks. We have given some "green light" for declaring banks bankrupt, instead of not letting them fail. This is a good sign, which can help resolve the bottlenecks hindering the closure of fragile institutions. Weak banks currently are a drawback for other lenders, but they cannot go bankrupt so that more resources are reserved for the stronger banks. We definitely need to take more drastic measures by enabling bank dissolution and bankruptcy.

Third, the supervisory norms must be changed. Our banking supervision system is outdated compared with the global systems. While the world is shifting from Basel-II to Basel-III standards to regulate banking and finance, we are still applying Basel-I and only just beginning to head to Basel-II.

Fourth, we should seriously resolve the cross-ownership problem among credit institutions. The process of dealing with weak banks has caused the cross-ownership situation to become more serious.

You have mentioned about letting weak banks fail. Is the domestic banking system capable of bearing a shock in case a bank goes bankrupt?

From the experience of other countries, we can absolutely prepare and arrange for undisturbed bankruptcy. Before announcing the dissolution of a bank, we can transfer all its rights and responsibilities, including those towards depositors and debtors, to a State-owned commercial bank. There certainly won't be any shock.

But cross-ownership is a major obstacle for bank bankruptcy and dissolution. What can we do to resolve these problems?

Our Fulbright researchers used to present a series of measures to partially reduce cross-ownership to the National Assembly's Economics Committee. We don't pursue the goal of erasing the problem because, to some extent, cross-ownership is still useful. For example, it has helped Japan succeed with their industrialisation policies during the 1950s and 1960s.

In most cases in Viet Nam, cross-ownership harms the financial system as well as the industrialisation policies, but there are enormous obstacles in resolving it. One major barrier is the interests of some privileged groups, and this is a sensitive issue.

What is the most effective key to this puzzle, according to Fulbright researchers?

One major cause of cross-ownership is the lack of close and consistent legal regulations. For instance, the law on information publication for public companies requires an individual owning a stake of five per cent or more to publicise his/her holdings, while the law on credit institutions states that a person is not allowed to hold a stake exceeding five per cent. Many people bypass the law by acquiring only 4.99 per cent of the equity of an institution. This has drawn a non-precise picture about the cross-ownership situation.

We will be able to speed up the process of dealing with this to a certain degree by strengthening the legal foundations and sanctions. ─ VNS