VietNamNet Bridge – Vice Chairman of the National Assembly’s Economic Committee Nguyen Duc Kien spoke with Nhan Dan (People) newspaper about the restructuring of the banking sector and solutions to deal with bad debts.

What is your assessment of Vietnam’s banking sector restructuring and the resolution of bad debts?

In all the economic structure pillars, the banking sector’s restructuring is the most successful with the number of banks reduced by 15, including nine weak banks. The banks have maintained liquidity flow and system stability.

Some people have said that the process has not touched on the root cause of the problem. What’s your view?

The general view is that the banking sector has taken some bold measures to settle bad debt and advance the restructuring process. This was conducted according to the law to ensure national monetary security. The State Bank of Vietnam has bought back some banks for zero VND. This has been done for the first time, showing our creativity in solving the issue. We cannot use the state budget for the settlement of bad debt, so we have to do it this way. The bad debts, on the other hands, have been bought by the Vietnam Asset Management Company (VAMC), which is the smartest and least risky solution for us.

The State Bank has asked all credit institutions to reduce their dividends to set up a contingency fund, so as to gradually clear up their system. This has to be done at the systemic level, including big banks.

Bad debt is a problem of the entire economy. The settlement of bad debt is related to the national economy because bad debts have been accumulating for a long time.

What are the differences in Vietnam’s banking sector restructuring and bad debt solutions, compared to international practices?

We don’t have a companion in the solution of bad debt. Internationally, other countries have the support of international organisations. For example, Greece solved bad debt with a loan of 270 billion USD from the EU, the European Bank and the IMF. We have to do it ourselves without financial support, even from the budget. So we have to choose the best solution for our situation. That’s why I said our solution is the most cost effective.

So we are settling bad debts using special solutions. What have been the challenges during the implementation, and how have we overcome those challenges?

There are three figures related to bad debts, including that of the credit institutions, of the banking supervisory body, and of international organisations. Only the number from the State Bank’s inspection is credible and legally binding.

There are two issues in bad debt solutions. We should not use the state budget because it will increase public debt. The second issue is that bad debts have been accumulating systematically and for a long time. The Government, ministries, sectors and localities, the whole political system needs to join hands to solve bad debts.

I think we need to auction all assets that are not under dispute, and solve all issues related to mortgages, for example some assets served as mortgages in several banks. The State Bank is not the sole agency to solve all economic problems. It has its own duties, and cannot do the work on behalf of commercial banks. VAMC has supported credit institutions and enterprises by buying the bad debts. We will also need more supervision.

I highly appreciate the fact that the State Bank did not allow commercial banks to distribute high dividends to shareholders, so as to set up a contingency fund. Also, there has to be close co-ordination among all related agencies, such as the ministries of Natural Resources and Environment, Construction, Public Security and the Court to solve the issue. The State Bank should apply Basel II standards in the management of the banking system to ensure safety and international integration.

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