Vietnam May Force Banks Into Bankruptcy as Overhaul Quickens

By John Boudreau and Nguyen Dieu Tu Uyen  

Vietnam’s central bank said it will push for bank mergers and force weak institutions into bankruptcy as it intensifies an overhaul of the country’s banking system to boost growth.
The State Bank of Vietnam will step up measures to “drastically” deal with weak banks that have no chance of recovery, according to a statement on its website yesterday. The central bank “is putting its utmost efforts to quicken overhaul of banks,” it said.
The Southeast Asian nation is targeting 2015 gross domestic product growth of 6.2 percent from 5.98 percent last year, as the economy shows signs of improvement on rising exports and investment. The years-long effort to clean up the banking system is a key component of the government’s drive to rejuvenate expansion, with lenders facing a year-end deadline to reduce bad debt to below 3 percent of total loans.
“They are looking at 2015 as a decisive year,” Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, the nation’s biggest fund
manager, said by phone. “The central bank is taking a more assertive role. If the banks get healthier this year, maybe the 6.2 GDP growth is achievable.”

Bank Mergers

The benchmark VN Index fell 0.2 percent at 1:02 p.m. in Ho Chi Minh City trading. The dong was stable at 21,345 against the U.S. dollar, according to prices from banks compiled by Bloomberg. The central bank expects six bank mergers to occur this year, it said in its statement. The nation’s large state banks are in a position to merge with weaker institutions, Pham said.
“The state-owned banks are the ones with the heft to do it,” he said. “At the same time, if the central bank thinks a weak bank is not salvageable, it is willing to let it be declared bankrupt.”
Vietnam’s economic growth last year beat the government’s 5.8 percent target. The World Bank forecasts the country’s GDP growth at 5.6 percent in 2015.
The country’s bad-debt ratio was forecast to fall to as low as 3.7 percent at the end of 2014 from 5.4 percent in September, according to Prime Minister Nguyen Tan Dung.