Since the system of credit institutions (CIs) of Vietnam conducted the first restructuring phase from the end of 2011 and the second phase from the beginning of 2016 up to now, the operation of the system has improved. However, this system is facing six thresholds that need to focus on handling and overcome to develop more successfully, safely and sustainably.
For a long time, the State Bank of Vietnam (SBV) often has to maintain multi-objective tasks such as controlling inflation, stabilising macro economy and promoting growth, which leads to sometimes reducing interest rates, expanding credit, moderating credit quality and decreasing bad debts. These objectives are clearly conflicting.
Furthermore, SBV must participate in many programmes to support production and business such as credit orientation in priority areas, credit packages (rice procurement, agricultural loans for high-tech applications, fishery loans, closed loans under the Decree 67/2014 and housing support loan programme). Usually, these policies and support packages belong to fiscal policy rather than monetary policy, because it requires the support of interest rates, capital and related to the state budget. However, in Vietnam, monetary policy is being “burdened” by the fiscal policy.
The above fact shows that the task of SBV is very complicated and sometimes awkward. It is high time to reduce these contradictions to build a more accurate, independent and modern central bank. Moreover, it is required to further accelerate the process of restructuring and strengthening people’s credit funds
During the past years, SBV has made great and active efforts in the process of restructuring credit institutions, especially for those that have been bought back at zero dong, but many things are beyond their authority.
On the other hand, due to the long process of asking for opinions, weak banks exist and operate toughly. Activities of these banks are almost unprofitable, good employees leave. Therefore, the longer they exist, the more their operation and management cost.
It is time to prioritise to focus on resolving weak credit institutions to ensure the successful implementation of Decision 1058 (July 2017) of the prime minister on restructuring credit institutions associated with bad debt handling for 20162020 period.
At the same time, it is necessary to consolidate and strengthen the activities of people’s credit funds. The channel of capital mobilisation through the one-sided credit fund has done a lot of work over the past time, contributing to hunger eradication and poverty alleviation, reducing the shadow banking situation. On the other hand, it is also expressing weak operating management, risk of deviating from the fund’s operational principles.
Currently, many banks in the region are adopting Basel III. Meanwhile, in Vietnam, according to the Decision 986 (August 2018) of the prime minister on the banking system development strategy by 2025 and vision to 2030, by the end of 2020 there will be about 10 to 12 banks meeting Basel II standards and by 2025, all banks fully meet Basel II.
This fact shows that we are quite late compared to the international progress (officially applying Basel II since 2006), as well as the internal demand. The time has come for credit institutions to concentrate highly on meeting Basel II standards, but more importantly, responding adequately and substantially to its meaning.
Accordingly, credit institutions need to focus on four issues: (i) best carry out the provisions in Circular No. 13/2018/ TT-NHNN on risk management and internal control; (ii) urgently enrich and build a big data base, both to run a quantitative risk model and to deploy digital banking; (iii) consolidate the apparatus and organise according to the meaning of Basel II, especially the organisational apparatus for risk management and compliance; (iv) fully meet capital safety standards in accordance with the Internal Capital Adequacy Assessment Procedure (ICAAP).
More specifically, at present, credit institutions still mainly carry out the capital adequacy ratio (CAR) according to Basel I, which is the corresponding arrangement of equity for credit risks, not including market risks. school and operational risks. Accordingly, the CAR coefficient of credit institutions is 12.1 percent by the end of 2018, but if applied under Basel II standards, this figure is only 77.5 percentmuch lower than the average of the area, 1012 percent.
This is an important issue, by international organisations as well as partners, when assessing and analysing a bank, they pay much attention to the CAR coefficient (accounting for about 20-25 percent of the rating weight). Meanwhile, the increase of equity for commercial banks is very difficult, especially commercial banks with dominant state ownership.
The main reason, according to the management agency, is that due to the limited state budget, these banks cannot retain the State’s dividends. I think that it is necessary to consider the broader, more flexible issue as a major shareholder, a professional investor, and including a budget management perspective, allowing stock retention at certain times is also to nurture long-term income for the banks.
In addition, the approval and agreement with foreign strategic shareholders also takes a lot of time, partly due to the process, procedures, and other part of the price agreement is not easy. Because the law requires the price to be determined as the average price of the last 10 trading sessions, but when there is a price, it must wait for approval, and when the two sides sit down to close the price, the market price will change a lot.
I think that it is time to prioritise to deal with the issue of capital increase, and at the same time the strategic selling price should also be reviewed in a holistic way to remove barriers for enterprises to equitise. State divestment.
Priority is given to improving the capacity of the inspection and supervision team
Activities of credit institutions thesedays are very different from those of 10 years ago, when the scale increased by 2.5 times, the nature of operation was much more diversified, not to mention new products and services associated with technology strongly developed, operational risks (factors related to process, technology, people and objectivity) are more complicated. This fact requires the inspection and supervision team of the system and each credit institution must be upgraded, enforce monitoring on a risk basis rather than administrative and have better warning and forecasting capabilities.
The goal of comprehensive financial promotion, if completed, will help credit institutions improve their ability to provide formal capital to citizens and businesses, contributing significantly to reducing the shadow banking. Accordingly, the government should give priority to direct and soon issue a national strategy on comprehensive finance and focus on the implementation.
Completing institutions for credit institutions.
This means that the problems still exist in dealing with bad debts, especially the handling of debts according to the Resolution 42/2017 of the National Assembly, need to be removed soon. This requires the participation of various ministries and agencies such as courts, police, judgment enforcement agencies, local authorities, as well as Vietnam Assets Management Company (VAMC) and CIs themselves.
At the same time, attention should be paid to speeding up the construction of legal framework for new financial products and services on the basis of technology such as peer lending, FinTech and digital payment, so that Resolution 01 and 02/2019 of the government can be well implemented, meeting the needs of the market.
In order to properly handle the thresholds mentioned above, policy makers and regulators need to focus on coordination, implementation, inspection, monitoring and communication to create consensus and positive response in society.
