VietNamNet Bridge – The State Bank of Vietnam (SBV) will be able to acquire stakes in those banks kept under special control when Decision 48/2013/QD-TTg of the Prime Minister takes effect on September 20.

This decision was released last week in order to concretize the scheme for restructuring the banking system, which was passed in February last year.

Stake acquisition in weak banks will be done when the solvency of such institutions has been secured with refinancing provided by SBV, according to the restructuring scheme.

As per the newly-issued decision, SBV can purchase stakes in weak credit institutions or contribute capital to them. When these credit institutions get healthier, the central bank may pull out of them through stake transfer to other investors.

Besides, SBV can assign certain credit institutions to buy stakes in weak banks. These credit institutions will receive refinancing loans and special loans from the central bank.

Credit institutions under special control are those having an accumulated loss exceeding their charter capital and reserves recorded in their audited financial statements. If halting their operations, these institutions would put the safety of the banking system at stake, says Article 149 of the Law on Credit Institutions.

SBV so far has submitted to the Prime Minister the schemes for restructuring eight banks among the nine classified as weak. As for the remaining bank, namely GP Bank, SBV is considering its restructuring scheme and will likely have to make interventions.

Three of these weak banks, TinNghiaBank, Ficombank and SCB, have been merged together. Meanwhile, Habubank has been merged with SHB and Westernbank will soon be merged with PetroVietnam Finance Corporation (PVFC).

Trustbank has sold a majority stake to a group of local investors and adopted the new name of Vietnam Construction Bank. Dai A Bank has planned a merger between it and HDBank.

In a report on inspection and supervision of credit institutions in the first six months, SBV said a number of weak credit institutions had not been treated properly, especially some joint stock banks and non-bank credit institutions.

The report noted the banking restructuring process was not so smooth since opinions of unrelated parties and authorities at many levels must be considered. The legal framework for handling weak credit institutions is not perfect yet, with a lack of heavy sanctions and compulsory measures.

Besides, there are not so many local and foreign investors with financial viability and good management skills to join the restructuring process. The economic environment and the financial market are not favorable to attract resources for this process.

There are concerns over the central bank’s possible participation in weak banks, however.

Nguyen Thanh Minh from the Credit Department of the HCMC University of Banking said SBV should not necessarily participate in the restructuring of weak banks.

At weak banks, the greatest need now is to reform their governance, especially risk management. Foreign banks have strength in risk management and will be more suitable for restructuring weak banks than SBV, he remarked.

As the number of banks subject to restructuring is small, foreign investors will hardly dominate the entire banking system, he said.

When restructuring is complete, SBV will more likely sell its stakes to domestic investors in the stock market than foreign investors, he predicted. However, he expressed a concern that a monetary authority like SBV would not be fit for business management.

Therefore, SBV should only stand outside and leave the restructuring of weak banks to other credit institutions to engage in, Minh suggested.

Source: SGT