Wall Street Journal
April 20, 1999
Vietnam Will Complete Bank ReformBy ANYA SCHIFFRIN
Within Next Two Years, Official Says
Dow Jones Newswires
HANOI, Vietnam -- Promising to complete the reform of Vietnam's banking sector "within the next two years," a top government official said none of the nation's banks would be closed unless the government sees no other alternatives.
In an interview, Hoang Nghia Tu, general secretary of the State Finance and Monetary Council, said "policy lending" -- lending made on the basis of government priorities, rather than business fundamentals -- will be separated from regular banking activities at the four state-owned banks by the end of this year. By then, he said, a deposit-insurance program will be set up, as well as a "risk" fund intended to deal with the nonperforming loans that have been piling up on the banks' balance sheets since the 1980s.
His statements marked the first time a government official has sketched out to the foreign media such a detailed plan for the country's banking reform, and the first time a date has been stated publicly for the separation of policy loans.
Still, some analysts questioned whether the central bank would act as quickly as Mr. Tu suggested. But they said that by taking the rare step of discussing the matter on the record, the government may be trying to send a message it is serious about its cleanup. Hanoi traditionally has kept its bank-restructuring plans under wraps, and rarely speaks publicly on the subject.
"We would like to see these things happen, but our experience has taught us to be cautious," said Stewart Hall, head of treasury at Standard Chartered Bank in Hanoi.
Vietnam's banking industry is widely considered to be in a precarious state. The International Monetary Fund and World Bank have warned Hanoi that economic growth will be jeopardized if reforms aren't carried out. But the government has been unwilling to stop policy-directed lending at the four state-owned banks; those loans are often used to fund unprofitable state-owned enterprises.
Discussing the separation of policy lending from commercial lending, Mr. Tu said: "Although the banks are owned by the state, we want them to engage fully in commercial activities." He added that "we don't want them to be diverted from their real functions, because they have to carry out policy lending."
The government will spend a total of $300 million over 1998 and 1999 to add to the chartered capital of the state-owned banks, said Mr. Tu. "We have to first ensure their financial capability, and we then we have to work with the state-owned banks to resolve their debt problem," he said.
Vietnam also has some semiprivate banks, known as joint-stock banks, but the market is dominated by the four state-owned banks. As a group, the 51 joint-stock banks also have been hurt by the downturn in Vietnam's economy, but they account for only about 10% of total lending activity.
Referring to the entire banking sector, Mr. Tu said overdue debt constitutes 8% of loans outstanding. "Our target is to bring down overdue debt to below 5%, and the government has already worked out solutions to this problem," he said.
Vietnam has no clear definition for what constitutes overdue or nonperforming loans, but foreign analysts believe overdue debts are far higher than official estimates. Analysts believe overdue debt at the country's joint-stock banks equal around 40% of total loans outstanding, putting Vietnam on par with China, but below even higher levels seen in Indonesia.
The four major state-owned banks are Industrial and Commercial Bank of Vietnam (Incom Bank), the flagship Bank for Foreign Trade (Vietcombank), the Bank for Investment and Development of Vietnam (BIDV Bank) and Vietnam Bank for Agriculture and Rural Development.
While the Vietnamese government won't break out the debt figures for the state-owned banks, Mr. Tu said overdue loans among Vietnam's 51 joint-stock banks are probably around 30% to 40% of loans outstanding in the sector. "We know that the operations and financial capability of the joint-stock banking sector is very bad," said Mr. Tu.
He said, where necessary, the state bank will put more stock banks under "special control," which means the country's central bank is able to impose limits on deposits and lending, reorganize their credit operations and bring in new shareholders.
Return to Tran Huu Dung's homepage