Vietnam bank reform a positive step, but lacks clarity: Fitch Ratings

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The Vietnamese government's plan to restructure the nation's banking system is a positive move, but a lack of clarity regarding the measures to be taken means significant risks may remain, according to Fitch Ratings.

Weak capital levels, tight liquidity and deteriorating asset quality are among the main concerns for Vietnam's banking sector, and the government's efforts to address the problems are therefore welcome, the rating agency said in a statement last week.

"In particular, we believe that the broader financial system would benefit from banking sector consolidation, as it could reduce the risk of insolvencies among smaller banks," Fitch said.

Under the plan to overhaul the banking industry by 2015, the Ministry of Finance will buy bad debt from lenders. The State Bank of Vietnam has also said it will force mergers among weak lenders if necessary.

But Fitch said there is little detail on when the government might initiate mergers or how big the bad-debt acquisitions will be. "Without these details it is impossible to gauge how significant a benefit the measures will be for the sector," the agency said.

It also warned that asset quality is likely to deteriorate further while liquidity in the domestic banking system remains susceptible to high inflation and low confidence in the dong.

According to the central bank, there are nine weak lenders in Vietnam that have been placed under close watch. The names of the banks have not been disclosed.

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