Institutional improvements crucial for bank restructuring

Photo: Can Dung

Buying banks at zero dong

Economists participating in a recent seminar held by the Institute for Legislative Studies proposed many measures to improve the legal bases for dealing with bad debts and restructuring the banking system.

They shared the opinion that the banking sector would still face a variety of difficulties and challenges in an effort to develop a sustainable banking system that can better satisfy the demand for capital and banking services of the economy in the new development period, given the context of deepening international integration, especially after the conclusion of negotiations on the Trans-Pacific Partnership.

The State Bank of Vietnam (SBV) bought OceanBank, GPBank, and the Vietnam Construction Bank for nothing, and became the owner of 100 percent chartered capital of these banks during the period from February to July. The SBV bought these banks with the aim to ensure the safety of the entire banking system and the interests of depositors, as well as to take the initiative in restructuring the banks.

However, some participants at the seminar shared the opinion that the SBV should have taken into careful consideration the rights and interests of all parties before deciding to buy weak banks at zero dong. Le Thi Nga, Deputy Head of the National Assembly Judicial Committee, wanted to know how the interests of minority shareholders at weak banks would be protected when the banks were bought, and how the SBV and deposit insurers played their supervisory role when putting weak banks under special control.

In the opinion of Le Thi Nga, it is necessary to build a legal institution aiming to protect the interests of minority shareholders. Along with ensuring the transparency of banking activities, it is necessary to improve institutional factors in fields such as registration for the establishment of banks, increasing chartered capital, inspection and supervision, system risk management, and human resources management.

Special legal framework required

According to the SBV, by the end of September 2015, the banking sector has basically fulfilled its target in dealing with bad debts, with the bad debt ratio reduced to 2.93 percent. However, Nguyen Quoc Hung, Chairman of the Member Council at the Vietnam Asset Management Company (VAMC), said legal tools for dealing with bad debts had not been improved. VAMC has encountered numerous difficulties in dealing with collateral and implementing creditor rights. The legal basis for operating the debt market remains inadequate.

In Hung’s opinion, VAMC needs a special legal framework to deal with bad debts. He suggested the issuance of a specific law on the treatment of bad debts, which indicates the rights and responsibilities of the borrower, the lender, and persons who deal with bad debts.

To resolve existing problems, Hung said that the National Assembly should consider the issuance of a resolution or a specific law that requires the bad debt handling process to be limited within a period of three to five years. The government needs to put in place a regulation on conditions under which debts can be sold and bought in order to form a debt market. At the same time, the government needs to provide guidance for concerned ministries and sectors to resolve existing problems in order to facilitate VAMC’s operations. A suitable legal framework is required to regulate all bad debt handling activities. In addition, it is necessary to build systems providing investors with transparent information about financial institutions and bad debts, creating a precondition for building a debt market in Vietnam.

Furthermore, in Hung’s opinion, the SBV and concerned ministries and sectors need to issue regulations or documents guiding the implementation of procedures related to the transfer of ownership and buyer right to use collateral, the execution of court decisions on the handling of collateral, land use changes, and the transfer of land use rights in the process of handling collateral.

Sharing this opinion, Dr. Truong Van Phuoc, Vice Chairman of the National Financial Supervisory Commission, said it was necessary to create higher liquidity for dealing with collateral, especially collateral in the form of real estate. Along with improving the legal framework for dealing with collateral, allowing credit institutions to be sold by auction without bankruptcy proceedings, it is necessary to create a legal basis for the secondary debt market to be formed and develop.

Duy Minh