VietNamNet Bridge – The best thing of the 2012 is the stabilization of the dong/dollar exchange rate. The worst is the bad business performance of commercial banks.

Bad debts on the rise

On June 7, 2012, Governor of the State Bank of Vietnam, Nguyen Van Binh, said before the National Assembly that the bad debt ratio of the banking system was about 10 percent.

The high percentage of bad debts gave people a start. Prior to that, people had heard that the bad debt ratio was 3.4 percent only.

Some economists have suggested that an asset management company (AMC) with the capital of 100 trillion dong should be set up to help deal with the bad debts. However, this remains a controversial measure. Experts believe that the bad debts would not be settled at least until 2015.

The ACB shock

In August 2012, Nguyen Duc Kien, former Deputy Chair of ACB, was arrested for his alleged misconducts in business. Two days later, Ly Xuan Hai, former General Director of ACB was arrested for deliberately violating the laws on economic management, thus causing serious consequences. One month later, four former members of the board of directors were prosecuted.

The bad news has badly affected ACB operation. The total assets of the bank had decreased by 67 trillion dong by the end of the third quarter.

The story about interest rates

Unlike 2011, when the interest rates went up and up, the year 2012 witnessed the ceiling deposit interest rates go down six times.

Especially, commercial banks were told in July to reduce the interest rates applied to the old loans as well to 15 percent.

The foreign currency market peaceful

By December 24, the dong/dollar exchange rate announced by the State Bank of Vietnam had stay at 20,828 dong per dollar for exactly one year. After many years (2008-2011) of instability, the foreign currency market had a stable year 2012. Though the dollar prices fluctuated sometimes, the fluctuations were acceptable which did not cause any big changes to the market.

Gold management policy laid down

On October 27, 2012, the State Bank of Vietnam, for the second time, released a decision to extend the deadline for commercial banks to stop mobilizing capital and lending in gold. The new deadline is June 30, 2013.

Stopping mobilizing capital and lending in gold is the goal the State Bank is striving to.

Bank restructuring process goes more slowly than expected

The State Bank announced in early 2012 that 5-8 banks would be sold or merged right in the first quarter of the year.

However, to date, only one merger deal has succeeded so far this year – the one in which Habubank was merged into SHB.

Meanwhile, other members subject to the restructuring have not wrapped up their deals yet, while the possibility of PVFC merging into Western Bank remains open.

Cross-ownership situation raises worries

The problem which was first mentioned in 2005-2007, became so burning in 2012. At the government’s regular meeting in October 2012, the matter of reducing the cross-ownership ratios in the banking sector, was, for the first time, was officially put on the table.

Investors tend to shrink back from the investments in the banking sector. ACB has decided to withdraw its capital from some other banks. Navibank has witnessed big changes in shareholders.

A tough year for commercial banks

Most commercial banks have anticipated that they cannot fulfill the yearly business plans. The credit growth rate was very low, which has made the profits down. Especially, some banks have foreseen losses.

Compiled by C. V