Vietnam needs specific regulations on banking bankruptcy, says World Bank

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A seafood producer in the Mekong Delta that had to downsize its processing line due to financial troubles

Economic experts from the World Bank suggest that Vietnam issue specific regulations on banking bankruptcy instead of just allowing poorly-managed lenders to keep operating with fund injections.

They have expressed their opinions to legislators and relevant ministries as the country revises its 2004 Bankruptcy Law, according to news website Saigon Times.

The State Bank of Vietnam has said that it would not allow "uncontrolled collapse" of financial institutions while the system undergoes a thorough restructure beginning in October 2011.

Since the plan began, the central bank has detected and dealt with nine weak banks by forcing self-restructuring and mergers.

Last year, central bank governor Nguyen Van Binh upheld the viewpoint in an interview with Thanh Nien on August 24, four days after a public attention-catching arrest of major bank ACB's founder Nguyen Duc Kien on suspicions of illegal business activities.


A collapse of a single bank might lead to a domino effect threatening the entire system's health, he added.

Meanwhile, analysts and businesses have complained for years that the current bankruptcy law was insufficient.

But the WB experts were unsatisfied with the third and also the latest revision draft of the law.

They said the law should include particular regulations on banking bankruptcy stipulated in an independent chapter or a special section.

This would result in timely bankruptcies to curb negative reactions from the market and maintain stability and public trust in the financial system, they said.

The experts said such regulations would allow government to step in to prevent losses to bank customers.

Non-committal or late actions taken by the government when a bank faces bankruptcy would shake its customers' faith and spark off runaways at other local banks, they warned.

The government also burdened itself with increases in public spending by committing help to banks, they said. 

Law in revision

Since the Bankruptcy Law took effect in 2004, 336 firms have petitioned courts for bankruptcy, but only 83 of them won approvals.

Draft law composers said the much smaller number of firms announcing bankruptcy compared to the annual figure of shutdowns -- estimated at around 50,000 -- meant that bankruptcy rules were inappropriate to the country's situation.

On November 18, Vietnam's National Assembly wrapped up its sixth session with a heated discussion of the revised Bankruptcy Law.

Many attendees disagreed with the draft regulation that businesses would be forced into bankruptcy if they fail to pay off loans of VND200 million (US$9,500) and higher after three months.

Voice of Vietnam quoted Uong Chu Luu, the assembly's deputy chairman, as saying such a measure would badly affect businesses since most firms' operations rely on bank loans, which could account for 80 percent of their capital investment.

Dang Thanh Tam, a member of Parliament, suggested scrapping the rigid loan level and requiring a threshold based on a loan-capital ratio instead.

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