Vietnam bank system risks high
HANOI - Vietnam's banking system is likely
to remain vulnerable and at risk as the government reforms the
sector in line with international standards, Standard & Poor's
said on Monday.
In the past year the government had established some
foundations for the development of a robust banking sector, but
effective implementation of recent initiatives combined with
deeper reforms were needed, the ratings agency said.
It said implementation of strengthened asset classification and
provisioning standards along with progress toward setting up an
entity to buy bad bank debts was evidence of Hanoi's
commitment to bank reform, albeit at a measured pace.
But poor disclosure made it difficult to assess progress.
``Asset quality is weak, disclosure poor, risk management
systems underdeveloped, and despite recent liberalisation
efforts, the market remains highly regulated,'' S&P said in a
country report on Vietnam, obtained by Reuters.
``The move toward more conservative prudential standards
however tentative is welcome, but combined with less robust
economic growth will inevitably result in increased volatility in the
sector.''
``...During this transition, the Vietnamese banking system is likely
to remain at the highest end of the global industry risk spectrum,''
the report added.
The report comes at a time when Vietnam is experiencing its
lowest growth in a decade. The World Bank has said Vietnam
might only grow 3.5 percent this year and three percent
thereafter if Hanoi does not accelerate economic reforms.
Central bank governor Le Duc Thuy has estimated total overdue
bank loans at some 14.5 percent of outstanding credit, but S&P
said the figure would be much higher if calculated by
international standards. It did not give its own estimate.
SECRECY LAWS POSE A PROBLEM
The agency said there was a need for more disclosure and
transparency, a headache for all businesses in Vietnam.
``Much of the industry data is covered by secrecy laws, and
meaningful information on the sector...and on individual financial
institutions has typically not been available.''
S&P said some progress had been made in separating policy
lending from commercial bank activity and recapitalising
state-owned banks, although foreign institutions still operated
under a variety of curbs.
Restoration of both domestic confidence and international
credibility remained one of the most pressing challenges for
banking authorities, the report added.
Officials say 25 percent of local savings lie outside the bank
system, a low estimate according to some economists.
Much of Vietnam's effort to create a strong banking sector
depended on other reforms, particularly to state enterprises
(SOEs), which typically borrowed on an unsecured basis and at
concessionary interest rates, the report said.
The report said considering the volume of SOE loans already
outstanding and the social policy objectives of the government, it
was likely state firms would remain principal recipients of credit
for the forseeable future.
Because of limited information it was difficult to assess Hanoi's
efforts to strengthen the dozens of small semi-private banks,
which sprang up in the past decade, S&P said.
While there was no timeframe, S&P expected the central bank
to introduce capital adequacy ratios of eight percent for all
banks in line with international standards.
Reuters - January 24, 2000.
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