The implementation of the project, ‘Restructuring the system of credit institutions in 2011-15' has entered its final year.

The restructuring has so far helped the banking system avoid the risk of collapse and gradually stabilise with achievements gained in handling non-performing loans (NPLs).

However, the restructuring process has remained slow despite the State Bank of Viet Nam (SBV) taking some drastic measures. Hence, much work remains to be done for the restructuring to finish on time.

Vietnam News Agency talks with SBV deputy governor Nguyen Thi Hong.

How do you assess the restructuring process of the banking system so far?

SBV deputy director Nguyen Thi Hong

The project for restructuring credit institutions with concrete steps and measures had been mapped and implemented meticulously and pressingly by the central bank since 2012.

Thanks to the strict implementation of the project, the banking system could avoid the risk of a collapse in late 2011. The operation of credit organisations is moving towards positive changes for creating a foundation for safe and sustainable development in accordance with objectives and orientations laid out in the project.

Do you think the restructuring of the banking system in the past can be seen as an important step forward for the system or is it just a move to maintain the stability of the banking system and prevent any collapse and crisis in some banks?

At the end of 2011, the banking system was at the risk of a collapse. Therefore, under the restructuring project, the State Bank has set a target to support liquidity, in addition to identifying, supervising, and handling weak credit institutions facing potential risks in the first stage of 2011-12.

It was an extremely difficult and challenging time, but with the strong determination of the entire banking system, the risk of a collapse of the system could be repulsed. This initial positive result has helped the banking system continuously take next restructuring steps and gain today's achievement.

After having repulsed the risk of a collapse, in the next stages, the banking system has promoted the restructuring of all the credit institution groups with a focus on improving the quality and efficiency of the governance systems to ensure that credit institutions meet requirements on capital and other safety ratios.

The central bank has also considered NPLs as a focus of the restructuring process; so, although there are no resources from the State budget, the State Bank has proposed suitable measures to handle institutions that have helped reduce NPLs significantly.

Thanks to the restructuring, credit institutions have so far operated more safely and efficiently, better satisfying domestic financial and banking demands. It has also gradually met international standards. In fact, international rating agencies have improved the credit ratings of many Vietnamese credit institutions over the past years.

In the past restructuring process, apart from the cases of consolidation and merger, the State Bank also decided to purchase the shares of some banks. What prompted that decision?

Banks are financial intermediaries and their operations are associated with depositors and borrowers. Therefore, when dealing with a weak bank, the central bank has to make decisions with utmost caution to ensure the safety and stability of the entire banking system as well as the interests of depositors.

In principle, a weak bank may be handled through measures such as voluntary or compulsory self-restructuring, mergers, consolidations, acquisitions, and bankruptcy.

However, declaring a bank bankrupt in Viet Nam is presently not simple because of legal problems. It will take a long time due to complex procedures, causing huge socio-economic consequences such as unemployment.

When a weak bank does not want to go into bankruptcy, the central bank will encourage them and give them the guidance for voluntary self-restructuring, mergers, consolidations or acquisitions. In case a weak bank is not capable of self-restructuring, merging or consolidating voluntarily, then the termination of such a bank can be unsafe for the entire banking system. So, the central bank must intervene through buying and taking over the weak bank to handle and restructure it. This measure is in accordance with Viet Nam's legal regulations. Many other countries have also taken this measure for the restructuring of their banking system and handling weak banks.

The SBV's decision to buy banks that used to have capital worth dozens of trillions of dong at 0 dong per share is only a normal measure in the process of restructuring the banking system. However, many people do not understand the nature of the issue. Can you explain?

Banks used to have capital worth dozens of trillions of dong, but their poor performance caused serious damage in terms of finance and it finally lost all capital. In principle, the purchase, sale, or transfer of any asset must be priced and the price also must match the asset's value. Based on the result of audited consolidated financial reports and assessment reports on banks' asset quality and provision funds made by independent auditing companies, the shares of banks have lost all value; therefore, the central bank acquired them for 0 dong per share.

The SBV's measure to buy and take over weak banks and then restructuring them to make them better is feasible as it can minimise possible losses that can occur during the restructuring. It has helped ensure the safety of the banking system and restore the operations of weak banks, which will contribute to securing the interests of depositors.

What will the central bank do after the acquisition?

After the acquisition of weak banks, the central bank will appoint a State-owned commercial bank that is eligible to take part in weak banks' management and execution.

Acquired banks will be streamlined and their governance, auditing, and internal supervision will be strengthened. It will be reordered to network and manage branches in accordance with new, safe, and efficient business plans. Shortcomings and weaknesses will be resolved with focus on bad debts and unprofitable assets. New business activities will be deployed to generate profits.

After successfully recovering, acquired banks' activities are basically stable and back to normal. When its equity increases, the State Bank will divest from the banks through merger or consolidation with other banks (with merger with State-owned commercial banks as priority); equitisation or sale to potential investors.

What measures will the central bank take to bring the restructuring of the banking system on track and finish on time?

First of all, the central bank will continuously focus on handling NPLs to bring the ratio down to under 3 per cent by the end of this year.

Secondly, we will consider the restructuring a regular work. For merged, consolidated or acquired credit institutions, the State Bank will closely monitor the implementation of the restructuring to promptly remove any difficulties that may arise. The central bank will also promote the comprehensive restructuring of all credit institutions, not only weak ones but also normal ones to make the system better. The weak credit institutions will be restructured radically, in the spirit of encouraging voluntary self-restructuring, consolidation or merger. However, the central bank will also intervene if necessary to ensure the safety of the system.

Thirdly, the central bank will enhance the governance of credit institutions through new mechanisms on the disclosure and transparency of information. Credit institutions will be encouraged to list on stock markets.

Fourthly, measures will be taken to control and handle cross-ownership among banks.

Fifthly, the central bank will also streamline a legal framework for monetary and banking activities to make it in accordance with Vietnamese practices and international standards. — VNS