A Vietnamese
Government plan to restructure the Vietnamese banking system is positive for
the sector, but a lack of clarity about the proposals and uncertainty regarding
the authorities' commitment and ability to go through with them means
significant risks remained in the short to medium term, according to the latest
statement released by global credit agency Fitch Ratings.
On the agency's website, it said that the Government planned to include
the potential acquisition of bad loans from commercial banks, measures to boost
capital levels and potentially the merging of weaker banks.
Weak capital levels, tight liquidity, and deteriorating asset quality
were among the main concerns in the relatively low-rated Vietnamese banking
sector.
The Government's efforts to address these problems were therefore
welcomed.
In particular, the rating agency believed that the broader financial
system would benefit from banking sector consolidation, as it could reduce the
risk of insolvency among smaller banks.
These smaller banks were fairly dependent on short-term interbank
borrowing and could therefore cause wider disruption to the sector in an
insolvency scenario.
Liquidity in the domestic banking system remained susceptible to high
inflation and confidence in the local currency, the Vietnamese dong.
The statement also stated that asset quality was likely to deteriorate
further. Non-performing loans were also significantly understated under the
country's accounting standards and could be three or four times higher under
international standards.
For example, there was a lack of transparency about how banks were
recognising, and the adequacy of, provisions relating to loss-making
State-owned enterprises.
Nevertheless, there was little detail available on when the Government
might initiate mergers, how big the bad-debt acquisitions would be or what
price the Government might pay. Without these details it was impossible to
gauge how significant a benefit the measures would be for the sector.
The Government's commitment to push through the reforms and its
capacity to absorb these bad debts was also unclear, the statement said, adding
that Viet Nam's ‘B+' Long-Term IDR reflected the risk from very high inflation
relative to GDP growth and high contingent liabilities from State-owned
enterprises and banks.
Although the financial-sector reforms would be viewed as a positive
step by the Government, they would have an impact on the country's balance
sheet.
Vietnam News
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