Central bank to reduce number of commercial banks

Vietnam’s economy scale would be fine with 14-17 domestic commercial banks instead of 30, State Bank of Vietnam Governor Nguyen Van Binh has said.

Speaking to the Saigon Times daily, However, the SVB Governor added that putting this strategy into effect will take time.

Responding to questions on speculations about mergers and acquisitions (M&As) amongst medium-sized commercial banks this year, Binh said it was still too early to confirm these rumours because the central bank must evaluate every step in the process and the ruling stakeholders must find the M&A necessary and voluntary.

“My strategy is to catch the mouse without breaking vases,” Binh stated.

This year, the SBV will keep pinning weak credit institutions, but market watchers doubted there would be an increase in M&A activity between now and 2017.

Economist Bui Kien Thanh told Ho Chi Minh City Law newspaper: “It’s quite easy for a credit institution to pay 3 trillion VND (136.36 million USD) to buy out another one. The important question is whether the buyer would be ready to carry the large bad debt of 30 trillion VND (1.36 billion USD) (that it would then acquire).”

In a determined attempt to restructure the system and improve its provisions, the central bank also wants Circular 02/2013/TT-NHNN on debt classification to gain approval on June 1 this year.

Binh said that the revised circular will be issued in the coming days, noting that the amended clauses were only technical.

The revision was done to make the new debt classification better suit the overall situation while ensuring reasonable efficiency, remarked the governor, adding that the central bank would strictly follow the direction to restructure the system.

Circular 02 strictly regulates asset classifications, the levels and methods of risk provisioning and the use of provisions to handle risks in the operation of credit institutions and the branches of foreign banks.

Earlier, leaders of some banks voiced their view that the application of Circular 02 in June 2014 means businesses would continue to be tied up and massive bad debts would be incurred.

Some rating agencies have recognised that the Vietnamese government has taken steps to stabilise liquidity in the banking sector, which have made the risk of a systemic crisis more remote.

However, for example, S&P noted that they were expecting more regulations to be placed regarding the settlement of non-performing loans.-VNA