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Six Measures To Restructure Credit Institutions (16/01)
16/01/2012 - 13 Lượt xem
How had the banking sector contributed to the objective of curbing the inflation and stabilizing the economy in 2011?
Although the credit growth of the entire banking system reached 12-13 percent in 2011, which is low (it is 33 percent as the average for the period from 2006 to 2011), we have curbed the inflation at 18 percent. According to preliminary calculations, if the bank credit operation is normal and the credit growth is as much as the previous year, the inflation will be ranging from 25-27 percent. Thus, it is possible to say that the activities of bank credit have contributed significantly to curbing the inflation, meeting over 80 percent of the capital needs of the economy, the a loaded impact on the economic growth. The economic growth in Vietnam this year is around 5.9-6 percent, a reasonable growth in the context of constraints (in the previous years it was 7-8 percent). In the previous years, the growth rate of bank credit was often as many as 5-7 times higher than the economic growth rate. In this year, the rate is only two times. This suggests that bank credit has been more effective in investment.
Although credit for the whole economy has increased 12-13 percent, the credit for the production sector has increased over 15 percent, meanwhile credit for non-production sector, especially for real estate, and stocks has plummeted sharply. The key areas of the economy have been given the priority to the maximum capital as agricultural production with average growth of 25 percent (over 30 percent for seasonal crops), the export growth is recorded at 58 percent.
In particular, the operation of the banking system has significantly contributed to the reduction of trade deficit. Early in 2011, we also dared to have set the target for the trade deficit at 16 percent of export turnover. Various comprehensive solutions (including measures to curb the credit growth of the banking system, an important solution, making the trade deficit rate lower than the expected, less than 10 percent) together with the other positive factors have made the overall balance of payments (BOP) in 2011 a surplus of of US$2.5 billion (for the first time after many years).
Operation of the banking system in 2011 also contributed to adjustments over social investment, overheated in previous years (from the average of 42-44 percent to 35-37 percent). Meanwhile, the investment efficiency has improved significantly.
How about Vietnamese credit institutions now?
I must say that in recent years, financial capacity and scope of credit institutions have increased rapidly; bank credit has become an important source of capital for enterprises and the economy. The total balance of outstanding loans from credit institutions has increased by an average of 29.4 percent per year in the period 2000-2010 and approximately 116 percent of GDP by the end of 2010.
Competitiveness and provision of banking services have been increasingly improved, better meeting the demands of the economy. Technology systems and banking management have gradually been renovated and modernized on a par with international practices and standards. Many modern banking services have developed and have become popular. Banking networks have extended over the whole country to create convenient conditions for people and businesses to access banking services.
While Vietnam promotes openness and international integration, the economy and the global as well as the regional financial system performs in complex variables, exerting a major impact on the domestic economic and financial system, causing series of destructions for financial institutions and banks, pushing the regional and the world economy into recession. However, the Vietnamese banking system has overcome the adverse effects of such shocks, while firmly maintained the stability and safety of the system to contribute an important part in stabilizing the macro-economy and the national financial system, and promoting economic growth. This affirms the process of renovation and new development in recent years which has created the more powerful position and strength of credit institutions. At the same time, it also proves that the policies for management of credit institutions promulgated by the Government and the State Bank of Vietnam (SBV) are fairly reasonable and effective.
However, with rapid growth in size, the credit institution system undergoes potential credit risks. And the solvency risk is high; meanwhile the stability, performance and competitiveness are not yet high.
The current weaknesses on the part of credit institutions have not been handled in a timely manner, which can adversely affect the macroeconomic stability and the national financial system. The scale of outstanding loan balances and assets of the local credit institution system go beyond the GDP to make the financial institution system vulnerable to unfavorable changes in the economy, whereas the instability of the credit institution system also greatly impacts on the macroeconomic stability. A weak banking system cannot mobilize or allocate effectively the capital in the economy, and it impacts negatively on the monetary policy.
Thus, the restructuring of the credit institution system is necessary to ensure the healthy practice and to enhance the efficiency and competitiveness of the credit institutions, which contributes to the macroeconomic stability, improves the investment efficiency and the sustainability of economic growth. Moreover, in a new phase, Vietnam also needs to develop a larger system of credit institutions with quality and efficiency, reliable performance and capability to take the advantage of new developments and to deal with new challenges.
So, how to reform the Vietnamese banking system quickly and thoroughly?
The experience from other countries shows that if we want a rapid and comprehensive reform for the banking system, the Government must play a decisive role through interventions with policies and financial resources, and to encourage the participation of the private sector in the process of restructuring the banking system. Reform is always accompanied by economic costs. For a comprehensive and safe development of the banking system, to attain the sustainable performance after restructuring, financial restructuring is thus important, but the restructuring of governance and operation including the institutional framework is a decisive factor. Typically, the suitable time, as it is considered, to reform the financial and banking system is when the economy has a relatively low level of inflation to create a spared play ground for strong intervention of the Government and the State Bank into the financial and banking system.
To achieve the objectives, the State Bank has studied and proposed six packages of comprehensive solutions for restructuring credit institutions. Accordingly, it encourages the merger, consolidation, acquisition of banks on the principle of voluntary wish to ensure the interests of depositors and the rights and obligations of the parties concerned in accordance with the law. With proper evaluation, classification to be carried out for them, credit institutions should be categorized into healthy credit institutions, temporarily weak in solvency, and poorly managed ones. On that basis, appropriate solutions are prescribed for each type, such as to facilitate its development, to prioritize its restructuring, or to be taken out of the market for those credit institutions which are too weak to recover. In the process of restructuring, especially dealing with weak and poorly managed credit institutions, healthy commercial joint stock banks will be the main force with the active participation, synchronized by the appropriate support of the Government and the State Bank in term of mechanisms, policies and resources for implementation. It is necessary to make the financing healthy with a focus on bad debt processing, to ensure capital adequacy as prescribed by law and to change the structure of the balance sheet towards a healthier and more sustainable status; to consolidate and develop business activities and reduce the business risks, inefficiency of credit institutions. It is to concentrate the bank credit on three areas of strategic breakthroughs in the Socio-economic Development Strategy (2011-2020) and for agriculture and rural development, exports, auxiliary industries, manufacturing-processing, and small and medium enterprises. Gradually it is to transform the business model of commercial banks so that they decrease the reliance on credit operations and increase revenues from non-credit services. It is needed to diversify and improve banking services; renew the bank management system to fit in common practices of international standards with a focus on implementing the system of risk management in accordance with the principles and standards of the Basel Committee. It is to increase the transparency of banking operations and the popularity of credit institutions. People's credit funds and small sized financial institutions should be consolidated and relevantly developed so that these organizations can operate with safety and effectiveness to contribute to hunger eradication, sustainable poverty reduction, development of agriculture, new rural development and to constrain the problem of usury.
In addition, the Government and the State Bank should continue to innovate and perfect the system of legal documents on banking activities, including safety standards and risk management, regulations on credit, regulations on loan classification, and regulations for contingent fund to deal with risks, all of which are more consistent with common practices and international standards, regulations on credit institutions licensing, opening and termination of branches, and transaction points of credit institutions. The accounting system of credit institutions should be made more applicable to international standards. It is to enhance the innovation and to improve the efficiency of inspection and supervision over the performance of the banks. That assignment should also be considered as one of the key tasks of the State Bank in the time to come./.
Source: VEN
