The efforts of the banking industry in the recent restructuring process have significantly contributed to ensuring operational safety, creating a sustainable macro-economic foundation, and contributing to raising Vietnam’s position in the world. This is reflected in the fact that credit rating agencies have continuously adjusted their ranking prospects in recent years.
Experts recognise that, on the positive side, the banking industry has had a very positive transition through each phase of restructuring. “We are in the final year of phase II of the process to restructure the credit institution (CI) system. It can be said that this is a period of remarkable change in banking organisation restructuring compared to the previous time, especially in the last three years,” said an expert.
Tran Dang Phi deputy Chief of Supervision and Supervision Department, Banking Inspection and Supervision Agency said that State-Owned Commercial Banks (SOCBs) continue to play an important role in the credit institution system, especially in terms of support and participation in handling weak credit institutions, content orientation in the operation of the whole system. Joint-stock commercial banks continue to be strengthened, rectified in terms of finance, management, bad debt settlement, enhancing measures to improve credit quality, and diversifying banking services. Activities of microfinance institutions continue to be strengthened and reorganised, making important contributions to hunger eradication and poverty reduction, local economic development and restriction of shadow banking. Credit quality has been gradually improved over the years, the measures of social safety have been implemented synchronously, using measures to prevent the newly arising bad debts. Commercial banks have been active in developing digital banks through organisational model changes, personnel structure, commercial centres are gradually becoming popular.
However, in the beginning of 2020, the Covid-19 pandemic had a strong impact on all industries and sectors of the economy, including the banking industry, affecting the process of system restructuring. Nguyen Tri Hieu realised that the increase in bad debt had slowed down the restructuring process. Not to mention the banks were struggling to meet the requirements of Circular 41 under Basel II standards, maintaining a minimum CAR ratio of eight percent. According to Hieu, last year, many banks tried to increase charter capital but Covid-19 has slowed down this process. Especially, the pouring of foreign investors’ capital with some banks has been delayed because they were also negatively affected by the pandemic, impacting the liquidity of banks around the world.
The authority also acknowledged that the impact of Covid-19 on the banking system affected the measures to restrict newly arising bad debts. Non-performing loans (NPLs) remained below two percent, but NPLs with potential risks of the pandemic in the last three months (March, April and May 2020) tended to increase, although they were still under control. Phi also affirmed that, although NPLs were at risk of increasing, by now, almost all important criteria of Decision 1058 had been well implemented by credit institutions.
Experts recognise that, in order to achieve the goal of restructuring phase II, creating conditions for restructuring the next phase, there are still parallel challenges that need to be resolved. Talking to reporters, in the view of a financial expert, among all matters from capital, products, and reorganisation, the most important of the upcoming restructuring lies in changing the mind-set of administration. Management thinking according to the family management style is still a phenomenon in some Vietnamese banks. According to Hieu, changing capital, people, organisations, and techniques but maintaining the old trend is still difficult to restructure strongly. The role of the independent members of the Board of directors must be strengthened and more clearly expressed.
Can Van Luc Chief Economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) said that corporate governance in banks required commercial banks to change their minds and how to operate to be able to adapt and meet new requirements. Management thinking also needed to be associated with thinking and awareness in the development of banking products and services. Experts also agreed that the restructuring of the credit institution system must go along with the restructuring of the other two pillars of public investment and SOEs. The restructuring of all three pillars lies in the transformation of Vietnam’s economy to a new growth model.
Observations of many countries show that the role of SOEs is still very strong and large in Vietnam’s economy, as an active and dominant force in the system. Regarding dealing with cross-ownership, cross-investment, experts think that there are many positive results. The situation of shareholders, large groups of shareholders, manipulating and the bank is controlled. By the end of 2019, the number of pairs of CIs that directly cross-owned each other has so far been overcome, the ownership of direct shares between banks and enterprises decreased, so far at one commercial bank with one pair of mutual stock ownership (as of June 2012 there are 56 pairs).
Talking about the orientation in the near future, deputy Chief Inspector, Tran Dang Phi said that the State Bank of Vietnam (SBV) would continue to direct credit institutions in implementing SBV’s regulations and instructions, continue to review and support clients being affected by Covid-19 pandemic. SBV will also focus on reviewing credit institutions at risk of increasing NPLs due to the impact of the disease to have full reviews and statistics. “At the same time, SBV is directing the CI to fully and deeply evaluate the implementation of Decision 1058, proceeding to build a restructuring project for the new period,” Phi said.
