Vietnam Mulls Letting Banks Go Bankrupt

Tuan Minh

12:25 25/10/2016

BizLIVE - The Vietnamese government will experimentally allow bankruptcy at banks, part of larger efforts to revamp the banking system.

Vietnam Mulls Letting Banks Go Bankrupt

Deputy Prime Minister Vuong Dinh Hue. Photo: Tuoi Tre

The Vietnamese government will experimentally allow ailing banks to file bankruptcy in a move to speed up the reshuffle of the local banking system while protecting depositors’ interests, said Deputy Prime Minister Vuong Dinh Hue.
During a discussion at the ongoing month-long sitting of the National Assembly, Deputy PM Hue said state resources are being used to handle bad debts stuck at banks.
Banks are setting aside provisions for credit losses, meaning that they don’t not have to pay income tax on that amount.
Further, banks can use special bonds issued by the Vietnam Asset Management Company (VAMC) to ask for refinancing from the central bank at an interest rate of 3%, lower than the normal rates of 7%-8%, the Deputy PM explained.
“The government has proposed piloting letting weak banks and credit institutions go bankrupt. We will safeguard depositors’ rights while preventing the domino effect,” he noted.
“Doing so [allowing bankruptcy] will serve as a warning,” Mr. Hue said, adding the government cannot continue to acquire practically broken-down banks at zero cost and then spend huge money to fix them.
Sharing the same view, Finance Minister Dinh Tien Dung stated that the government cannot throw a rescue buoy to weak banks for a long time. “We can’t save banks that post prolonged losses.”
The local banking system underwent a painful revamp in 2011-2015 period, with many mergers taking place and the central bank acquiring three weak banks in 2014 to prevent a systematic collapse.
The health of the system has improved considerably, with the gold and forex markets now under control, permitting the government to take bolder steps.  
A central banker was quoted by VnEconomy as saying that the banking regulator will soon issue guidance for bankruptcy.
According to Nguyen PhuocThanh, deputy governor of the State Bank of Vietnam, the central bank will first let under-performing credit funds and finance companies go bankrupt and small-size banks will follow suit.