WB suggests that Vietnam let its central bank take more initiative

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Vietnam's Vice Minister Vu Van Ninh speaks at the conference of "Strengthening financial system soundness and supervision" with the World Bank on December 18

Vietnam should give its State Bank more rights to manage the country's banking system, carry out audits at state-owned banks and shut down those which are too weak, experts from the World Bank have said.

Victoria Kwakwa, the World Bank's Country Director for Vietnam said the Vietnam government should clarify the role of the central bank, give it more power and at the same time, ask it to be more responsible, news website thoibaokinhtesaigon reported Wednesday.

The government should perform three main roles including supervising the economy, accelerating the process of reform and creating a sustainable environment for the financial system.

To do so, Vietnam should reduce the government's ownership rates in big lenders and let private companies invest more in those banks, Kwakwa said.

WB expert Roberto Rocha suggested Vietnam carry out a special audit at all state-owned commercial banks and big commercial banks. The second step would be to re-finance those banks based on the audit's result and shut down those who are too weak, he said.

Finally, he recommended that the banking system be fully reformed and all state-owned commercial banks commercialized.

Rocha said that the Vietnam's economy depends too much on the banking system, an area that accounts for as much as 200 percent of the country's GDP and 92 percent of the assets.

The country's bad debt rate now ranges too wide between 5 and 20 percent, he said, showing a lack of trust in financial reports at local banks.

Vietnam Vice Minister Vu Van Ninh said the country's bad debts are under control but admitted that the debt rate is still high and that the cross ownership involving state-owned, joint stock, and foreign banks, financial companies, and state-owned and private firms was still an issue.

Cross ownership of banks poses a threat to the entire financial system because it is one of the main reasons for increasing bad debts, he said. When banks have companies as major shareholders, they are likely to lend for their projects without assessing the risks carefully.

But he said that after two years of restructuring the financial market, credit operations at Vietnamese banks have gradually stablized and liquidity has improved. Weak commercial banks have been restructured and put under tight control. The country's stock market has also recovered and has become one of the world's ten fastest growing markets this year.

Vuong Dinh Hue, Vietnam's Central Economic Committee Chief, promised control public debt, external debt and debt at enterprises, especially debts at economic groups and state-owned corporations.

According to the State Bank of Vietnam, the banking sector's bad debts at the end of November were worth VND142 trillion (US$6.73 billion), or 4.55 percent of outstanding loans compared to the rate of 4.73 percent at the end of the previous month.

If it was not for local banks who used their provisions to deal with bad debts last month, the rate may be up to 8.02 percent, said  central bank Chief Inspector Nguyen Huu Nghia.

He confirmed that the rate of increasing of bad debts has slowed down but admitted that local banks have not yet accounted for and evaluated their bad debts properly. He said the rate of bad debts reported by the central bank was thus always higher than that of the lenders.

Nghia said that next year, the State Bank Inspection Agency will focus more on categorizing the bad debts so the state lender can come up with proper measures.

Along with that, the central bank will examine the current cross ownerships in the banking system to figure out how to minimize the dominance of big shareholders in local lenders.

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