Vietnam urged to sweep up weak banks

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Vietnam needs to be aggressive in restructuring the banking system by either eliminate or merge weak lenders, economists said.

With a gross domestic product of around US$100 billion, the country now has too many banks and the competition is harsh, economist Nguyen Quang A said.

The banking system has not collapsed like banks in other country, but it's only because the local financial market is still at a low level, he said in an interview published by Tien Phong newspaper Saturday.

"I think it's necessary to eliminate and revoke licenses of commercial banks that are weak and likely to fall," he said.

However, A said the housecleaning must be conducted carefully since it would not affect banks alone but many depositors as well.

Vietnam's banking system has four state-run banks, 40 partly-private banks and five fully foreign-owned banks, according to data compiled by Reuters last week.

Economist Le Dat Chi told Thanh Nien that the State Bank of Vietnam should consider buying stakes to control small and weak lenders and then merging them. The government's investment arm, the State Capital Investment Corp., should also partcipipate in the process, he said.

After the purchasing and merging, the state will manage the new banks for some time before eventually withdrawing its capital, Chi suggested.

In order to strengthen the banking system, the government needs to force banks to raise their capital. "Speeding up this process will create a pressure for small lenders to merge among themselves," he said.

Fitch Ratings said in a report on October 9 that the regulatory efforts to raise capital levels at banks have been subjected to delays in the past. "The agency believes regulatory capital requirements may be raised further and could eventually lead to consolidation in the system over the medium to long term, especially for the smaller banks in Vietnam," it said.

According to the agency, Vietnamese banks are currently among the lowest-rated banks in the region.

Minister of Planning and Investment Bui Quang Vinh said earlier this month that the government will focus on restructuring state-owned enterprises and commercial banks in 2012.

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