VietNamNet Bridge – Vietnam will step up the restructuring of the banking sector this year but this process will require certain regulations to be revised to create a favorable legal framework, the governor of the State Bank of Vietnam (SBV) said.

Le Minh Hung, governor of the State Bank of Vietnam (SBV)

Le Minh Hung said at a VietinBank 2017 business plan meeting in Hanoi on January 9 that a legal framework should be designed in a way that facilitates the settlement of bad debts and the restructuring of the banking system. The SBV will coordinate with relevant agencies to build a law on settlement of bad debt and restructuring of banks, he noted.

The law, Hung said, would provide regulations for dealing with ailing banks that must be restructured and there should be regulations on settlement of bad debt too.

The central bank will seek approval from the National Assembly to add regulations on confiscation of assets used as collateral for bank loans that have turned bad. If NA approval is given, this impediment to settlement of bad debt could be removed.

Hung said the SBV had written to the Supreme People’s Court and the Supreme People’s Procuracy asking them to consider adjusting rules in a way that makes it convenient to cope with mortgaged assets.

Regulations on cross ownership in the banking system should be made clear while rules for ensuring safety for the system should be improved.    

“Individuals who buy into banks must provide proof of financial sources. Bank loans cannot be used to acquire bank stakes. Violators will be banned from joining a bank’s board of directors,” Hung said. The SBV will enhance inspections into banks’ lending and investment activities in the bond market.

More than 50% of bank loans come with medium and long terms while medium- and long-term deposits account for 13-15% of the total, exposing lender banks to big risk.

He said banks tend to make more loans to high-risk real estate, build-operate (BT) and build-operate-transfer (BOT) road projects and corporate bond purchases. Hung said the central bank this year would issue rules protecting the banking system from those risks.

He noted banks had achieved positive results in settlement of bad debt by making risk provisions.

The SBV told leaders of banks to evaluate the quality of loans, especially big ones, and corporate bonds, and classify debts to take precautionary measures.

SGT