Vietnam central bank sees more bank M&A, gradual rate cuts

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A worker decorates the sign of the Saigon Commercial Bank at a location formerly operated by Ficombank. The bank's bad debt level was believed to be high before it merged with Ficombank and Vietnam Tin Nghia late last year.

More mergers and acquisitions among Vietnamese banks are expected in the near future as part of a campaign to restructure the banking system, a deputy central bank governor said.

Restructuring would be conducted on voluntary basis and closely monitored by the State Bank of Vietnam, Deputy Governor Dang Thanh Binh told Reuters, without naming any particular bank.

"The government and the State Bank are determined in dealing with weak credit institutions that could threaten the safety of the banking system," Binh said in written answers sent to Reuters on Thursday.

Moves to shrink the number of banks in Vietnam and reform its financial sector may be stalling, which could hurt efforts to put the country's economy on a solid footing for the long term.

Many weak banks have been seeking domestic and foreign investors to help raise their registered capital and improve operation, Binh said.

"In near future, the market will continue seeing mergers, acquisitions and takeovers of credit institutions," he said.

In April the central bank has approved in principle the acquisition of troubled lender Habubank by SHB , a senior Habubank official has said.

Late last year the State Bank arranged for three weak lenders to merge, and governor Nguyen Van Binh has said eight to 10 banks would be merged this year.

The central bank will maintain flexibility in regulating its monetary policy "to ensure liquidity in the banking sector, stabilize the exchange rate, gradually cut interest rates," Binh said, repeating central bank statements made earlier this year.

He said the central bank has now minimized systemic risk by coordinating with stronger banks to provide liquidity to weaker banks.

Standard & Poor's Ratings Services revised on Wednesday Vietnam's outlook to stable from negative, citing fewer risks to macroeconomic and financial stability.

The agency said indicators including credit growth, foreign exchange reserves, and domestic currency interest rates have improved over the past 18 months.

The central bank may cut the ceiling rate on dong deposits by another 2 percentage points to 9 percent later this year to help boost lending and spur economic growth, a state-run newspaper said last Friday, as policymakers across Asia eye fresh stimulus to combat the global downturn.

The central bank has cut the ceiling on dong deposit rates three times so far this year, having lowered the highest rate banks could pay depositors to 11 percent after inflation had eased. The latest move had been in effect since May 28.

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