Thailand
Vietnam: New law set to bring weak banks in motion
The Hanoitimes – Some weak banks undergoing restructuring might get through the hardest part thanks to unprecedented support measures under a new law, experts have said.
The revised Law on Credit Institutions, which has taken effect since earlier this year, includes many regulations to help weak banks rebound and resume their healthy performance with support from the State Bank of Vietnam (SBV) and other strong credit institutions that are entrusted to support the weak ones.
According to experts, weak banks need to have good liquidity to resolve their problems, however, it is not easy, especially as their brands are negatively affected by being put under the special supervision of the central bank.
Without liquidity, their accumulated losses will become more serious as they have to continue paying deposit interest rates to have the capital for balancing non-profit assets and funding the costs of rising bad debts.
Banking expert Nguyen Tri Hieu revealed that the central bank has many devices to help weak banks improve liquidity so that they can have enough money for their operations. Liquidity support is very important for the banks to have a chance of rebounding before the central bank takes other measures.
Under the new law, during the recovery period, weak banks placed under SBV’s special control can receive preferential loans even at an interest rate of 0% from the SBV. They can also receive deposits or loans at preferential interest rates from their supporting credit institutions, along with a permission of buying corporate bonds of the supporting credit institutions.
To enforce the law, earlier this month SBV issued a decree allowing special 0% loans for Vietnam Construction Bank, Ocean Bank, and GP Bank, which were placed under the SBV’s special control.
According to the decree, SBV, Deposit Insurance of Vietnam, Co-operative Bank of Vietnam, and other credit institutions could provide zero-rate loans to the institutions.
The special loans are aimed at providing liquidity support for the institutions when they are in danger of losing solvency or going into insolvency and posing a threat to the overall system’s stability during the time they are under the SBV’s special control.
In addition to the provisions on liquidation, the law also regulates a host of other amendments, which aim to improve the governance and operation of weak credit institutions.
Analysts said these new regulations provide the legal framework necessary for the government to better handle underperforming banks.
During the past four years of restructuring the country’s banking system, the SBV had to compulsorily acquire Vietnam Construction Bank, Ocean Bank, and GP Bank at zero dong.
Restructuring has also been implemented at other weak banks in the past few years and some of them have begun to perform better. National Citizen Joint Stock Commercial Bank (NCB), for example, has increased its charter capital beside promoting financial services and restructuring its board of directors. Especially in 2017, this bank gained a net profit of about VND265 billion (US$11.6 million), up 26% over the same period in 2016.
Under the new rules, banks which have successfully restructured (like NCB) will have more opportunities to perform even better.
Without liquidity, their accumulated losses will become more serious as they have to continue paying deposit interest rates to have the capital for balancing non-profit assets and funding the costs of rising bad debts.
Banking expert Nguyen Tri Hieu revealed that the central bank has many devices to help weak banks improve liquidity so that they can have enough money for their operations. Liquidity support is very important for the banks to have a chance of rebounding before the central bank takes other measures.
Under the new law, during the recovery period, weak banks placed under SBV’s special control can receive preferential loans even at an interest rate of 0% from the SBV. They can also receive deposits or loans at preferential interest rates from their supporting credit institutions, along with a permission of buying corporate bonds of the supporting credit institutions.
To enforce the law, earlier this month SBV issued a decree allowing special 0% loans for Vietnam Construction Bank, Ocean Bank, and GP Bank, which were placed under the SBV’s special control.
According to the decree, SBV, Deposit Insurance of Vietnam, Co-operative Bank of Vietnam, and other credit institutions could provide zero-rate loans to the institutions.
The special loans are aimed at providing liquidity support for the institutions when they are in danger of losing solvency or going into insolvency and posing a threat to the overall system’s stability during the time they are under the SBV’s special control.
In addition to the provisions on liquidation, the law also regulates a host of other amendments, which aim to improve the governance and operation of weak credit institutions.
Analysts said these new regulations provide the legal framework necessary for the government to better handle underperforming banks.
During the past four years of restructuring the country’s banking system, the SBV had to compulsorily acquire Vietnam Construction Bank, Ocean Bank, and GP Bank at zero dong.
Restructuring has also been implemented at other weak banks in the past few years and some of them have begun to perform better. National Citizen Joint Stock Commercial Bank (NCB), for example, has increased its charter capital beside promoting financial services and restructuring its board of directors. Especially in 2017, this bank gained a net profit of about VND265 billion (US$11.6 million), up 26% over the same period in 2016.
Under the new rules, banks which have successfully restructured (like NCB) will have more opportunities to perform even better.
Source: http://www.hanoitimes.vn/economy/2018/02/81E0C245/new-law-set-to-bring-weak-banks-in-motion/