The national banking restructuring scheme has born initial fruits, said a newly released report from the Government

Relevant state agencies and banking watchdogs have focused on assessing the actual operational statuses and quality of assets to build up feasible restructuring plans with a priority over liquidity support to ensure the solvency of those credit institutions.

Meanwhile, they have also been asked to voluntarily join merger schemes to be acquired by healthier institutions, increase their chartered capital, reduce bad debts and change operational and administrative mechanisms, said the report.

At the same time, state authorities have developed synchronous and drastic restructuring measures for the nine weakest commercial joint-stock banks.

Saigon Bank (SCB), First Bank (Ficombank), and Tin Nghia Bank were merged into a new Saigon Commercial Joint Stock Bank, and Hanoi Building Bank (Habubank) was acquired by Saigon-Hanoi Commercial Joint Stock Bank.

Western Bank Commercial Joint Stock Bank has been asked to merge with the PetroVietnam Finance Joint Stock Corp (PVFC), while the restructuring plans for Nam Viet Commercial Joint Stock Bank (Navibank), TrustBank, TienPhongBank, and GP Bank are underway.

The government is also keeping an eye on state-owned commercial banks by asking them to focus on implementing solutions to strengthen themselves, review their key business activities, and actively participate in the national banking restructuring scheme by offering liquidity support when necessary.

On efficiency improvement - sustainable development

The government has also asked relevant state agencies to strengthen the operational management of the banking system, monitor the implementation of the capital adequacy ratio and other banking safety standards to improve credit quality, and comply with state regulations on monetary and banking activities.

Meanwhile, the banking restructuring scheme for the 2011-2015 period should be drastically deployed and the national Vietnam Asset Management Co (VAMC) should be urgently brought into operation to help reduce bad debts and increase credit availability for the banking system, said the report.

Prime Minister Nguyen Tan Dung, in a meeting with voters in the northern city of Hai Phong on May 11, expressed the same ideas, adding that after returning to his office after the meeting, he would sign a decree on the establishment of the VAMC.

Bad debts reported by local banks were at VND120 trillion ($5.76 billion) as of the end of last year, accounting for 4.1percent of total outstanding loans.

But according to the latest report of the State Bank of Vietnam, as of the end of February 2013, total bad debts were reduced to about 6 percent, down from 8.8 percent of total outstanding loans recorded in August last year.

However Dr. Trinh Quang Anh, the director of a local research institute, said at a Spring Economic Forum held in Nha Trang last month that the scale of bad debt may exceed VND500 trillion if all the potential liabilities, including those of Vinashin and Vinalines, were included.

The settlement of bad debts should have 5-year roadmaps and so, the target set by the central bank is reasonable, the government website quoted Vu Viet Ngoan, Chairman of the National Financial Supervision Commission (NFSC), as saying.

Firstly, the VAMC will help clean the balance sheets of the banking assets, thus enabling banks to expand credit and offer more loans.

But VAMC, which may be funded by the state budget, cannot solve every problem, because the state budget is very limited, he said.

According to the central bank’s draft proposal on bad debt settlement, VAMC can handle approximately VND100 trillion ($4.8 billion) worth of bad debts, thus partially resolving the situation.

In 2012, the national banking system set aside more than VND60 trillion as loan-loss provisioning, which will help in tackling their own bad debt situations.