Vietnam to strengthen banking system with more "discipline'

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Troubled lender Hanoi Building Commercial Joint-Stock Bank was taken over by SHB in August

Vietnam's government has ordered the central bank to strengthen discipline in the banking sector and completely "deal with" all weak lenders next year.

The State Bank of Vietnam needs to take timely measures, including those to reduce bad debts, in order to stabilize the banking system and regain the confidence of the public and investors, according to a resolution issued by the government Friday.

Vietnam's economy faced many challenges in the first nine months of the year, with inflation speeding up in September and loans expanding at a much slower pace than expected, the government said.

The central bank must continue its flexible monetary policy in a way that can help local companies access loans but does not fuel inflation, the resolution said.

Outstanding loans in Vietnam's banking system had risen an estimated 2.35 percent as of September 20 from the end of last year, the government said last week.

Moody's said on September 28 that Vietnamese banks' impaired balance sheets have encumbered their ability to provide credit in support of economic growth, despite aggressive monetary easing by the central bank since March 2012.

The State Bank of Vietnam said in June that it would restructure nine weak lenders within a few weeks. So far it has not provided any update on the plan, apart from giving approval for Saigon-Hanoi Commercial Joint Stock Bank to take over troubled lender Hanoi Building Commercial Joint-Stock Bank in August. The central bank had earlier arranged for three weak lenders with liquidity problems to merge at the end of last year.

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