Vietnam should consider merging its banks, ADB says

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Vietnam should consider consolidating its banks and infusing more capital into lenders as part of structural reforms of the financial industry, the Asian Development Bank said Wednesday.

"The number of banks is obviously too many, compared to the size of the economy," Tomoyuki Kimura, Asian Development Bank's country director for Vietnam, said in an interview in Hanoi Wednesday. "There are also some weak banks, which are under- capitalized and over-leveraged, so obviously the government has to do something."

Vietnam is struggling to contain the fastest inflation in Asia while expecting economic growth to slow this year. The economy is vulnerable partly due to under-capitalized banks, rising debt and deteriorating corporate profits, Credit Suisse Group AG said Aug. 29. The banks' outlook is negative due to falling profits and poor asset quality, Moody's Investors Service said Sept. 1.

The government can strengthen the financial sector with a capital infusion or merging weaker banks with stronger lenders, Kimura said.

"Something must be done in the financial sector before they really face problems," he said.

Vietnam's immediate priority should be restoring economic stability, and structural reforms are needed to address the root cause of high inflation, Dominic Mellor, Asian Development Bank's economist for Vietnam, said at a briefing Wednesday in Hanoi.

Negative outlook

Vietnam's inflation accelerated to 23.02 percent in August, a 33-month high, according to preliminary figures from the General Statistics Office in Hanoi. The pace is the fastest in Asia, according to Bloomberg's data.

The outlook for the nation's banking system over the next 12 to 18 months remains negative, in line with the country's sovereign debt, Moody's said Sept. 1, citing concerns about falling profits and poor asset quality. The ratings company also warned that Vietnamese banks need more capital to cushion against losses.

Gross domestic product in Vietnam, a manufacturing site for companies from Intel Corp. to Honda Motor Co., rose 5.57 percent in the first six months of the year. That's lower than a revised 6.18 percent expansion in the first half of 2010, according to figures from the General Statistics Office.

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