Need drastic solutions to deal with weak banks

	HCM City enterprises borrow US$12.5 bln from banks in 2016
	The exchange rate may increase at the range of 2% - 4% in 2017
	Banks expect stable interest rates

Ass. Prof. Dr. Nguyen Thi Mui.

Speaking to a reporter of the Customs Newspaper, the financial-banking expert, Ass. Prof. Dr. Nguyen Thi Mui said that the State management agencies needed more drastic measures, even disposing of weak banks.

Please tell us about the risks of the banking system?

According to the State Bank of Vietnam (SBV), the "health" of the banking system has progressed well, but I still find some risky and unsafe issues.

The first issue is that the risk of credit and liquidity can make bad debts increase. The causes of this issue are cross-ownership and cross investment in banking activities which lead to the phenomenon of "virtual capital”, the inaccuracy in calculation of the capital adequacy ratio (CAR) in many banks. Meanwhile, a number of banks have invested heavily in areas with high risk such as real estate, securities and BOT projects which have caused the huge consequences related to bad debts, without being easily handled.

The second issue is that commercial banks have used a large proportion of short-term loans to conduct procedures for medium-term and long-term loans. At the conference on the business mission in 2017, the State Bank of Vietnam said that in 2016, the rate of medium-term and long-term loans accounted for more than 50% of total loans, while the capital raised for medium-term and long-term loans accounted for only 12-15%. This made banks always face up with risks. If these risks cannot be resolved, it will be difficult for the banking system to stabilize.

Another issue causing risks for the banking system is technology. Although the banks have really paid much attention to technology investment to modernize the banking system, not all banks have enough financial capacity and human resources to implement. Therefore, technological risks likely are very sophisticated. These risks not only affect customers, causing loss of money but they also seriously affect the reputation of the banks and safety of the banking system.

In recent times, the State Bank of Vietnam has launched several measures to deal with weak banks. What do you think about these measures?

In my opinion, the restructuring of commercial banks has been slow, so the handling of some weak banks has also been ineffective. Without early treatment, these banks may cause difficulties for the building of a healthy banking system as the target.

The best measure is that the State Bank of Vietnam has bought 3 weak banks with the price of "0 vnd". This measure has overcome the collapse of banks as well as the banking system. However, the commercial banks which have been chosen to support have many difficulties in the quality of human resources, financial capacity and experience of business administration. This has also slowed down the process of restructuring and reduced the effectiveness of bank restructuring.

Along with the above solutions, recently, the State Bank of Vietnam has pointed out some banks with problems to be resolved as well as the weaknesses of the banking system for making a plan to overcome. Besides, the State Bank of Vietnam has proposed to the Government to construct a Law on dealing with weak banks and bad debts to submit to the National Assembly in 2017.

Till now, if these banks are still weak, the State Bank of Vietnam should consider disposing of them.

What are the key solutions to deal with weak banks?

In my opinion, a number of weak banks have implemented a series of solutions such as: special control, banking support or proposing to the State Bank of Vietnam to support and ensure liquidity through a number of mechanisms and policies. Till now, if these banks are still weak, the State Bank of Vietnam should consider disposing of them. Bankruptcy of banks is a sensitive issue in Vietnam, but after 2-3 years without achieving the minimum result, the weak banks should be disposed of. Of course, when any banks go bankrupt, the Government should make sure that these banks will not break the banking system, to protect the interests of depositors.

In fact, regarding the interests of depositors, when people deposit money at any banks with high interest rates, the risk will be higher. But many people think that there will be no chance for banks to collapse or go bankrupt because of the support of the Government. Thus, in the near future, this view needs to be reviewed and changed to clarify the relationship between profit and risk. Also, the banking system should be transparent and consistent for people to easily make the right investment decisions.

Regarding bad debts at weak banks and financial institutions, the State Bank of Vietnam needs to amend the Law on credit institutions and other relevant laws. Continuing to restructure bad debts to quickly resolve problems related to security of assets. The revision of the Laws needs to be improved gradually towards safety in the banking system in line with international practices.

Besides, the Government should prevent and resolve loopholes in the Law and policies, especially investment in shares to avoid cross-ownership and cross-illegal investment. I know the Governor of the State Bank of Vietnam directed commercial banks to tackle this problem drastically because cross-ownership and cross-illegal investment are major weaknesses of the banking sector. Therefore, when investors hold shares at a certain level, they must clearly identify the source of money to stabilize the market.

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Another issue is that the Government needs to publicize higher conditions and standards to ensure the responsibility of the Heads of banks. In particular, the inspections and supervision of banking activities should be implemented strictly for commercial banks to interpret and comply with general regulations of the banking sector.