10 year problem

Nguyen Manh Dung, Deputy Director General of DIV, recalled a story about Asia Commercial Bank (ACB) several years ago. Due to a rumour about the escape of the managing director, depositors rushed to the bank to withdraw money leaving the bank in temporary insolvency.

The ACB’s case was considered a small crisis, but it took many months to settle the consequences because Vietnam did not have an effective risk management mechanism.

Two joint stock banks, Nam Do and Viet Hoa have been put under supervision since 1997 due to bad performance and so far there has been no final conclusion of the two cases.

The state has injected a large sum of money to settle the banks’ problems, but the settlement has not yet been completed. Viet Hoa still owes VND115bil ($7.18mil) to domestic debtors and $95mil to foreign debtors, and no one can say when all those debts will be paid, if ever. The state has pumped VND300bil ($18.75mil) into Nam Do and has not seen any return.

In the 1990s, a lot of credit cooperatives and credit funds collapsed, leaving both the state and depositors to deal with the consequences. The collapse of massive credit cooperatives and funds has since scared people away.

In the US, it took only 90 days to settle the Hamilton bank crisis in 2003 and 98% of total assets were collected.

In the Republic of Korea, the Government successfully restructured five small banks to create Woori financial group. It injected $12.8bil to reinforce the financial situation, then equitised the group and took the state capital back. Five banks on the verge of bankruptcy have turned into the leading South Korean financial group with total assets of $93bil.

Following international practice: now or never

According to Bui Khac Son, Director General of DIV, it is too late to draw up a risk settlement mechanism.

Vietnam needs to follow international practice right now, especially after signing the Vietnam – US Bilateral Agreement and joining the WTO.

While banks in Vietnam operate under the market mechanism already, there is still no mechanism to settle risks.

Throughout global integration, Vietnamese credit institutions will have to enter a fierce competition. Good banks will develop well while banks with bad management will collapse. All these scenarios should be anticipated and dealt with by state management agencies, Mr Son said.

The risk settlement project and DIV’s experts have outlined seven risk scenarios and suitable solutions.

DIV plans to create two tools to deal with risks, bridging and companies for managing the assets of collapsed banks. Risk management should not be solved by the state any longer.

According to international practice, DIV will have the responsibility to ring the alarm bells when it discovers warning signals, risks, and financial restructuring that hints at a problematic financial institution environment.

Source: VietnamNet.