Difficult to find investors for restructuring weak banks: Vietnam central bank

By Minh Hue
Mon, November 6, 2023 | 9:33 pm GMT+7

Placing five banks under special control was "unprecedented" and it will not be easy to find investors to help restructure them in the post-pandemic context, said the State Bank of Vietnam governor.

The central bank's (SBV) Governor Nguyen Thi Hong was responding Monday to legislators’ queries on the stability of the banking system at the ongoing session National Assembly (NA) session.

State Bank of Vietnam Governor Nguyen Thi Hong at a Q&A session as part of the ongoing National Assembly meeting on November 6, 2023. Photo courtersy of Nhan dan (People) newspaper.

State Bank of Vietnam Governor Nguyen Thi Hong at a Q&A session as part of the ongoing National Assembly meeting on November 6, 2023. Photo courtersy of Nhan dan (People) newspaper.

The banks under special control are Construction Bank (CB), OceanBank, GPBank, DongA Bank and Saigon Commercial Bank (SCB).

SCB was the latest case under special control since October 2022 after many of its branches and transaction offices recorded a run on deposits due to concerns about the bank’s financial health

Pham Van Hoa, an NA member, expressed concern that there could be "one more SCB", adding that with five banks already under special control, the situation could become very dangerous.

Governor Hong responded that building a project to restructure weak banks was very difficult and rendered even more so “when the economy is affected by the Covid-19 pandemic and the recent fluctuations in the world economy."

It was very hard to find investors to voluntarily participate in restructuring weak banks, she explained, adding that a mechanism to restructure them was awaiting approval from competent authorities.

The SBV will also complete a detailed project for the restructuring and submit it to competent authorities for approval, she added.

Hong said “special control” was a professional measure to strictly control and limit negative impacts on banks and the credit institution system in general. In Vietnam’s banking industry's history, many banks have come under the central bank's special control, but later recovered and thrived, she noted.

Legislator Ha Sy Dong, permanent Vice Chairman of the central province of Quang Tri, asked if maintaining a credit growth cap risks creating an “ask-give” mechanism or other negative phenomena.

Hong responded that the economy depended on bank credit, but its debt-to-GDP ratio has hit 120%, which was an alarming level according to international organizations.

“If we lift the credit growth cap, credit will skyrocket,” she said, noting that in the past credit had increased by 30% each year and even 53.8% in 2007, posing a risk to the banking system.

She noted that the Prime Minister has organized many conferences recently on developing capital markets so that other channels such as corporate bonds can provide medium- and long-term capital for businesses.

“At that time, banks will only provide short-term and mobile capital and we can remove the credit cap," Hong said.

The SBV always followed certain principles in fixing credit quotas every year. "Credit quotas cannot be given to credit institutions arbitrarily, but based on their ratings with clear criteria," she said.

Banks with reduced interest rates and active participation in bank restructuring will be given higher credit quotas while those giving loans to risky areas will see their credit room narrowed, she added.

Hong said that the SBV set a credit growth target of 14% for the whole year and allocated credit quotas to all credit institutions in the system by the middle of the year. It has made four policy interest rate cuts to bring rates on new loans down by about 2 percentage points compared to the end of last year.

Despite great efforts, as of October 27, credit increased by only 7.1% compared to the end of 2022.

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