The State Bank of Vietnam has confirmed that four commercial banks GP Bank, Navibank, TrustBank and Western Bank will be restructured by the end of this year because of their weak liquidity.
The central bank has not, however, revealed what steps the four banks will take in their restructuring process.
Experts agree the move will help improve the quality of the banking system, but say it should have happened earlier.
Economist Bui Kien Thanh said, "The restructure should have been done sooner. Amidst low liquidity, the weak banks may offer high deposit interest rates to raise funds, causing risks to the whole banking system."
To find an effective way to restructure the banks, their bad debts should be accurately reported, he said.
According to reports from the four banks, their bad debts are estimated at some 2-3 percent of their outstanding loans.
Central bank inspectors and independent agencies estimate the bad debt levels at some Vietnamese banks in double digits.
There have been reports that the central bank may allow Navibank to restructure on its own and the Ho Chi Minh City-based lender would not need to merge with other partners.
Navibank announced bad debts of over 3 percent in late June, and a net profit of VND91.5 billion (US$4.36 million) in the first half of this year.
Local media also reported that Western Bank may merge with PetroVietnam Finance Corporation (PVFC), a unit of PetroVietnam Oil and Gas Group, saying the two sides are in negotiations.
Representatives of PVFC, a non-banking financial institution, said the company has not issued any official announcement about the merger, but did not deny recent rumors.
Nguyen Thien Bao, PVFC's director general, had told local media late April that the company planned to convert from a financial company into a commercial bank.
GP Bank and Trust Bank will not be able to restructure on their own and will have to merge with other banks, industry insiders say.
Economist Thanh said although the banks are ready to restructure their business, it is not easy to implement the plan amid the sluggish stock market and the economic downturn.
"It will be difficult to find investors who want to pour their money into these weak banks. Few investors would want to spend their money on buying the bad debts or repaying deposits of account holders," he said.
In fact, weak banks could declare bankruptcy under the Bankruptcy Law, he said. "Having over 50 commercial banks, as we do now, is too much. If 30 of these announce bankruptcy or shut down, the rest is enough for the economy."
Small banks with low liquidity have rushed to raise interest rates to attract deposits, forcing large banks to raise their rates as well to keep their customers. "This has seriously hurt firms and the whole economy," Thanh said. "Thus, eliminating weak banks to ensure the economic stability is a necessary step."
The central bank had earlier said it would restructure nine weak lenders by the end of June, calling for the participation of all investors in the process.
So far, it has officially approved the voluntary takeover deal between Saigon-Hanoi Commercial Joint Stock Bank and Habubank, following a merger of three small banks late last year.
Le Tham Duong of the Banking University of Ho Chi Minh City said mergers and acquisitions will continue to happen since Vietnam still has several weak banks.
"The restructuring of banks will continue for the next three to five years. We have to implement this in both small and large banks in a drastic manner."
Former central bank governor Cao Sy Kiem said the weakness of banks is mainly due to low liquidity. "If their risk management strategies are not well implemented, the merged bank could still end up being a weak one," he cautioned.
Dealing with bad debts is of key importance, Kiem said. "Mergers and acquisitions can make a weak bank stronger only when the bad debt problem is solved."
The ratio of non-performing loans in Vietnam's banking system stands at about 8 percent to 10 percent, Bloomberg reported, citing a posting on the central bank's website last week. The monetary authority aims to lower this number to below 3 percent by 2015 as bad debt growth has slowed since June.
Moody's Investors Service cut Vietnam's government bond rating on September 28, citing risks to the state's balance sheet from "weaknesses" in the banking system and lower growth prospects. Prime Minister Nguyen Tan Dung told the National Assembly last week the government aims to complete a basic restructuring of struggling lenders by the end of next year.
Like us on Facebook and scroll down to share your comment