Nation facing up to a steep banking curve

10:20 | 04/12/2012
Vietnam last week hosted the East Asia Conference for Financial Stability for the first time. On the sidelines of the conference, the National Financial Supervisory Commission chairman Vu Viet Ngoan shared his viewpoint about Vietnam’s financial system compared to those of the wider world.

How do you assess  the stability and safety of Vietnam’s financial system in comparison with the region and the world?

In the past 10 years, Vietnam’s financial system has failed to meet international standards. It still lags behind other nations.

Especially, the global recession in 2008-2009 created more challenges for Vietnam to catch up with other countries in financial reform.

At this conference, reports from some countries such as Japan, Korea, Singapore and Thailand show that they are approaching the Basel III standard.

They have met about 12 out of 14 conditions on capital and liquidity, while Vietnam and some other countries like Laos and Cambodia are still at the starting position. So, Vietnam should push up this process more quickly, not only accessing common practices but also overcoming internal shortcomings.

In my opinion, there are some criteria of Basel III standard that Vietnam cannot meet.

However, Vietnam does not need to follow the sequence from Basel I, II to III, but can apply whatever we can from Basel III.

It is clear that reforming the financial system is an urgent priority for Vietnam. However, in recent times the restructuring has not been efficient. What do you think?

We need time and resources to address difficulties for Vietnam’s economy and banking system, which have already persisted for a long time. It is more important that these solutions must be suitable for Vietnam,  instead of imitating servilely because restructuring our banking and financial system is different from that in other countries.

At first, Vietnam should define risks in the restructuring process, which is an important step before adding regulations to prevent similar risks from likely happening in the future.

It is not right to say that the process of banking system restructuring and lowering bad debt is being carried out slowly,  because the government has never given a specific deadline for this matter. Recently, in a National Assembly meeting, we set a specific timeline that till 2015, the bad debt would be lower than 3 per cent.

Vietnam’s government showed strong determination about this matter, therefore, I believe that it will be addressed clearly.

The government asserts that the financial system restructuring this time will focus on commercial banks. What do you think about the current safety level of Vietnam’s credit institutions?

At the end of 2011, the liquidity of the banking system was poor. Many banks faced the non-performing loan (NPL) issue and some already lost their liquidity, creating a gloomy market.

However, the government and the central bank applied measures to ensure banking system liquidity. Those include affirming the rights of depositors, rescuing banks facing liquidity problems by injecting capital and controlling the investment expansion of such troublesome banks.
Until now, the entire system’s liquidity has been improved a lot.

The most important thing right now is to focus on solving the NPL issue to unfreeze the credit flow into the economy.

Many international financial institutions said that Vietnam has yet to find a breakthrough in its restructuring of the banking system, especially in solving the cross-ownership issue. What is your opinion?

There are some issues which result from the structure of the credit institutions system and they have existed for quite a long time. Therefore, to solve those issue,  we need to have time and resources suitable with the specific circumstances of Vietnam. This problem differs in each country so we can not have a same solution to different countries.

Vietnam’s banking system is in the early development phase and the detection of the systematic risk is very necessary. We need to solve it or at least limit it. To do this, we need the collaboration of supervisory agencies, and especially the central bank plays an important role.

The first step, which Vietnam has been carrying out,  is identifying the risks. This is an important step prior to issuing additional regulations to prevent similar risks that may arise in the future.

The government has also shown determination in solving this matter, so I believe that next time the solutions will be defined clearly.

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