Economists support PM's speech on closing weak banks

At the regular government meeting, held from August 27 to 28, Prime Minister Nguyen Tan Dung asked agencies to deal with bad debt during this time of bank restructuring. He said, "Weak banks must be strictly monitored and shut down if necessary."

In June, the National Assembly gave its consent to the new banking bankruptcy policy. From January 2015, credit institutions will be able to file for bankruptcy. If an insolvent facility does not file for bankruptcy on its own, the State Bank of Vietnam will file for bankruptcy on behalf of that facility. Those which have taken out special loans from the state bank will have to pay their debts before distributing assets and paying salaries and insurance to employees.

One banking expert said that this is a strong message to bank shareholders, meant to urge them to quicken the restructuring process. Many banks have tried to improve their operations by making new development plans and offering more credit services. However, some banks have been slow to reform, some still operate with negative charter capital due to the heavy load of bad debt. He said, "The state bank has been supporting the banking system, but the state cannot subsidise a weak system forever."

The leader of a commercial bank in Hanoi said, "Bankruptcy of institutions in the financial sector is not necessarily a bad thing. It could serve as a warning to other banks. I think Vietnam has too many small banks and most of them are performing poorly." He went on to say that the true value of a bank does not lie in virtual profits or adventurous loans, but in the benefits for its shareholders and customers.

Keith Pogson, the head of Asia-Pacific Financial Services, Ernst & Young, agreed that Vietnam should dissolve its 'zombie banks'.