According to the project of restructuring the system of credit institutions and the Decision 1058 of the prime minister, the deadline 2020 is close. There is not much remaining time to reach the targets.
Will the system of Vietnamese commercial banks witness breakthroughs in restructuring in the remaining two years?
According to BizLIVE’s research, the breakthrough promise lies in the possibility of a new model: bank in bank model.
This model is described as follows: when a large bank merges with a bank that has difficulties, instead of merging the whole book and system, risk areas of the bank with difficulties will be frozen and separated from the large bank.
In practice, if this model had been applied to the merger of Hanoi Building Commercial Bank (Habubank) into Saigon-Hanoi Joint Stock Commercial Bank (SHB), Southern Commercial Bank (Southern Bank) into Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank), the situation may have been different.
In these two cases, Habubank and Southern Bank had a difficult financial situation. When merging, both of them immediately dragged SHB and Sacombank down, and they still have not recovered.
If the said model had been applied, SHB and Sacombank before the merger will have more independent and convenient conditions to continue to maintain and promote the existing effective momentum, thereby having more resources to handle step by step the merger in a more sustainable and proactive way. However, in the first phase of system restructuring, policy mechanisms are still incomplete and unsupportive.
At this stage, when the project 1058 mentioned above is more than halfway in its timeline, restructuring of Vietnamese banks has started to have a legal framework for the bank in bank model.
Specifically, the Amendment of the Law on Credit Institutions in 2017 has important contents to shape, although not expanding on the subjects, and facilitate the application of necessary restructuring cases.
Accordingly, in case of difficult banks under special control or compulsory repurchase, they must carry out compulsory transfer plan if their implementation of self-recovery plan does not succeed, and if there is a credit institution willing to receive the transfer. The separation mechanism is clearly defined.
In the above case, the bank in bank model is evident in the fact that the receiving bank has the right not to consolidate the financial statements of the compulsorily transferred bank.
The compulsorily transferred bank must also be excluded when calculating the consolidated capital adequacy ratio. Capital contributed to the transferred commercial bank must not be required to make provision for devaluation of investments and be excluded when calculating the limit of capital contribution or share purchase of the receiving credit institution. Shares of credit institutions receiving transfer can be issued to foreign investors in accordance with the approved compulsory transfer plan.
In Vietnam, because the laws just issued, there have been no cases to apply the new model and mechanism.
In the previous period, the lack of new legal frameworks to remove obstacles, support and promote the banking system restructuring process was considered one of the reasons for its slowdown.
Nonetheless, with the Amendation of the Law on Credit Institutions, which determines the new model and other support mechanisms, restructuring progress is expected to gradually improve.
In particular, it is likely that the bank in bank model will come to practice in Vietnam with specific cases while banks are studying and considering.
In addition, recently, some large foreign investors officially mentioned the desire to invest and restructure in Construction Commercial One Member Limited Liability Bank (Construction Bank) and Ocean Commercial One Member Limited Liability Bank (Ocean Bank), which promises new progress in the process of restructuring the system.
In previous years, there were times when some foreign investors wanted to participate in this process but did not go to the end. However, similarly to the introduction of the new model, the legal framework has taken a new step to support and promote the process.
