Ailing banks permitted to go bankrupt from next year

The NA on November 21 voted on an amended version of the country’s Law on Credit Institutions. With an overwhelming majority (88.8 per cent), the NA passed the bill, which list bankruptcy among the five options to restructure a credit institution under special surveillance.
This is the first time Vietnam officially allows banks to go bankrupt as the top leadership had feared for the spillover effect and massive cash withdrawal.

This is the first time Vietnam officially allows banks to go bankrupt.

Under the law, several banks of CB Bank, Ocean Bank and GP Bank, which were purchased at zero value by the State Bank of Vietnam (SBV) and DongA Bank, which was put under special control by the SBV, will continue to be restructured under previously approved plan.
In a previous discussion with NA deputies, SBV Governor Le Minh Hung said whether ailing banks are allowed to go bankrupt or not SBV’s highest priority was to safeguard the country’s financial system, the people’s trust and lawful rights of depositors.
Many deputies had voiced their concerns against policies of buying out ailing banks with State’s budget, which is ultimately taxpayers’ money, citing numerous shortcomings and uncertainties within the country’s current banking regulations.
A report by NA’s economics committee also advised against buy-out policy.
 “In some cases, the situations of financial institutions are beyond saving. Rescuing them will be completely against market economy principles and burden the State with even more risks and liabilities,” said Vu Hong Thanh, the committee’s chairman.
High bad debt ratio and a series of embezzlement and mismanagement scandals hit the country’s banking sector in recent years threatened its financial system’s stability and prompted the Government to perform an overhaul on banking regulations.
Prime Minister Nguyen Xuan Phuc said the non-performing loan (NPL) ratio in the Vietnamese banking system has been on the decline since the start of this year, as banks speed up the handling of toxic debts and a new regulation became effective in August to facilitate this thorny process.
Bad loans accounted for 2.46 percent of total credit at the end of August, reducing from 2.55 percent in the first quarter of 2017 and 2.48 percent in the second quarter, according to central bank statistics. 
The National Assembly enacted a resolution on August 15 to allow the repossession of mortgage, paving the way for banks and the Vietnam Asset Management Company (VAMC) to liquidate their bad debt stockpiles more quickly. 
The government report added that the Vietnam Asset Management Company had issued VND261 trillion ($11.5 billion) worth of special bonds to acquire NPLs as of end-July since its establishment in July 2013. Of the amount, the company recouped over VND60 trillion ($2.64 billion), including 16 trillion dong in the nine months through September.
In the first eight months of this year, banks in Vietnam handled as much as VND57 trillion ($2.5 billion) worth of bad debt.