The method of acquiring weak banks at VND0 is officially adopted on the draft law on supporting the restructuring of credit institutions and non-performing loan (NPL) settlement, composed by the State Bank of Vietnam (SBV). However, buying at the price of VND0 or boldly letting poorly performing commercial banks go bankrupt remains a dilemma.

What to do with weak banks?

On April 5, the Ministry of Justice held a meeting to appraise the law on supporting the restructuring of credit institutions and non-performing loan (NPL) settlement. 

One of the controversial contents of the draft is the compulsory purchase at VND0. 

These measures are adopted to weak banks placed under special control and given time to recover, but there is no effective recovery plan.

According to the SBV’s draft, this measure is only an alternative channel with an aim to avoid system breakdown in case other remedies prove ineffective. 

Finance and banking expert Can Van Luc said legalising the method of buying banks at VND0 will create a solid basis for the SBV to speed up the restructuring of the banking system. However, Luc also warned that this measure should not be deployed en masse.

Meanwhile, lawyer Truong Thanh Duc, chairman of BASICO Law Firm, said that this is a complicated, expensive, and unnecessary solution. 

"The purchase of banks at VND0 is only symbolic because maintaining a weak credit institution with negative chartered capital is very complex and costly, whether it is done directly or indirectly,” Duc said.

According to experts, the SBV offers a solution of purchasing these banks at VND0 (instead of allowing them to declare bankruptcy) not only to avoid the collapse of banks as well as the banking system but also to save credit institutions that may have good growth potential in the future.

However, in fact, before the VND0 purchasing option, the SBV has set a 5-10 year roadmap for these banks to recover. 

If banks remain weak, they cannot be fixed. Then, if the SBV continues to maintain weak banks, it will lead to market distortions and affect the safety and health of the banking system.

Moreover, the purpose of compulsory purchase is to protect the interests of depositors, not to save bankers. 

Therefore, the best measure is spending all resources on supporting depositors instead of the weak banks.

If the SBV still does not want to declare a credit institution bankrupt, instead of buying it at a compulsory price of VND0, the State can announce that it would pay out the depositors, but there should be a deadline and the process may even last for several years instead of an immediate all-around pay-out.

Weak banks should be allowed to go bankrupt

Another solution to handle weak banks stated by the draft law is dissolution or bankruptcy. This measure is supported by some experts.

According to lawyer Truong Thanh Duc, when it comes to weak banks, before the dissolution, bankruptcy or purchase at VND0 in line with the draft, the SBV has given a long time to sort themselves out, so their bankruptcy will not affect the security of the system. 

The compulsory purchase of VND0 is still costly and if the SBV later sells these banks at a higher price, it will not look good on the SBV, despite the significant capital SBV poured in to restore these credit institutions. 

In fact, over the years, some banks, such as Viet Hoa and APBank, have been quietly dissolved without so much as a ripple in the overall system.

Although the solution of buying weak banks at VND0 adopted by the SBV (including Ocean Bank, GPBank, and CB) has been praised by lawyers, legalizing as one of the critical solutions to tackle weak banks needs careful consideration.

Economist Le Xuan Nghia said that the solution of buying a bank at VND0 recently successfully avoids system breakdown and keeps the trust of depositors. 

However, in the next phase, weak banks must gradually decrease both mobilization and lending in order to avoid panic. 

Then, it is necessary to let some weak banks go bankrupt to set an example, instead of continuing to buy at VND0.

Agreeing with Nghia, finance and banking expert Nguyen Tri Hieu said that the SBV should let the major banks with negative capital go bankrupt instead of buying them at VND0. Bankruptcy will reduce unfair competition on the market.

Of course, according to the SBV, when applying the methods like bankruptcy, dissolution or purchase at VND0, the foremost principle is prudence and the maintenance of the system’s security, as well as ensuring depositors’ interests.

VIR