Vietnam allows central bank to hold stakes in weak lenders

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The State Bank of Vietnam will be able to buy stakes in specific weak banks to restructuring them, following a decision made by the government last week, news website thoibaokinhtesaigon reported Monday.

The decision, which will take effect by September 20, is part of a plan to restructure the banking system approved by the government in February last year.

It allows the central bank to purchase stakes in weak credit institutions or contribute capital to them and help them become healthier. After that, the central bank can either merge them with other credit institutions or sell those stakes to other investors.

The central lender can also assign certain credit institutions to buy stakes in weak banks. These credit institutions will receive refinancing loans and special loans from the central bank.

Weak credit institutions or institutions "under special surveillance" of the state bank include those whose have accumulated debts exceeding their charter capital and other reserve funds, according to point 149 of the Law of Credit Institutions.

The state bank has submitted to the Prime Minister plans to restructure nine commercial joint stock lenders classified as weak.

Among them, three Ho Chi Minh City-based lenders -- TinNghiaBank, Ficombank and Saigon Joint Stock Commercial Bank (SCB) -- were merged together in 2011.

Hanoi Building Commercial Joint-Stock Bank (Habubank) was merged with Hanoi-based SHB, formally known as Saigon-Hanoi Commercial Joint Stock Bank, last year.

Westernbank will soon be merged with PetroVietnam Finance Corporation (PVFC).

Trustbank has sold a majority stake to a group of local investors and adopted the new name of Vietnam Construction Bank. Dai A Bank has planned a merger between it and HDBank. Navibank has its own restructuring plan. Only GP Bank has not made any move.

In a report on the inspection and supervision of credit institutions in the first six months, the central bank said a number of weak credit institutions had not been handled properly, especially some commercial joint stock banks and non-bank credit institutions.

The report said the banking restructuring process was inefficient. The legal framework for treating weak credit institutions is still lacking heavy sanctions and compulsory measures, according to the report.

Besides, there are not many local and foreign investors with the financial ability and management skills needed to guide the restructuring process.

Some say the central bank shouldn't intervene at all.

Nguyen Thanh Minh from the Credit Department of the HCMC University of Banking said it was not necessary for the state bank to buy stakes and participate in the restructuring of weak lenders.

What those weak banks need is management reform, especially risk management, he said, adding that this was a strength that foreign banks had.

Therefore foreign lenders should help restructure the banks, not the state lender, he said.

He tried to assuage fears that foreign banks would thus dominate the entire system by saying that there aren't very many banks in need of restructuring.

He said the central bank's risk-management schemes would follow a "Vietnamese style" likely to push foreign investors away. He added that once restructuring is complete, the central bank will more likely sell back stakes to domestic investors on the stock market rather than foreign investors.

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