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Book: Restructuring the financial system in Vietnam

Update at 12:17, Sunday, 26/12/2021 (GMT+7)

On the basis of reviewing the restructuring of the financial system from some of the most critical aspects, the monograph written by Assoc.Prof.Dr. Editor-in-Chief Le Trung Thanh has clearly identified the problems of restructuring the financial system after the crisis, on that basis, proposed policy recommendations to continue implementing the restructuring of the financial system more effectively and suitable to the new context of the domestic and world economy.

Author: Assoc.Prof.Dr. Le Trung Thanh (Editor)

Cover Type: Paperback

Book size: 16 x 24 cm

Cover price: 119,000 VND

Place of publication: Science and Engineering Publishing House

Publication year: 2017

ISBN: 978-604-62-8997-5

After the global financial - monetary crisis in 2008, the domestic macro-economy fell into recession and there were many signs of prolonged instability, the Vietnamese economy revealed many systemic weaknesses, which most obviously are low labor productivity and competitiveness. Faced with that situation, the Government of Vietnam has carried out economic restructuring associated with transforming the growth model towards improving quality, efficiency and competitiveness. Three focus areas of economic restructuring have been identified by the Government, including:

(i) Investment restructuring, focusing on public investment;

(ii) Restructuring state-owned enterprises, focusing on corporations and corporations;

(iii) Restructuring the financial system, focusing on credit institutions.

Of the three above-mentioned focuses, the restructuring of the financial system was identified as very difficult, because of the existing problems and limitations of both the commercial banking sector and the state budget sector which prolonged. The handling of restructuring in both these areas is extremely sensitive, affecting all three basic tasks of economic restructuring, including: (i) Stabilizing the economy; (ii) Reform the State - market relationship to facilitate business; and (iii) Modernizing the economic structure.

Overcoming these difficulties, the results of restructuring the financial system in the early stages are very encouraging. Weak and at-risk joint-stock credit institutions have been closely monitored and rearranged, implemented to handle bad debts, healthy balance sheets, and ensure system safety. The financial market is stable, safe, and liquidity is guaranteed. By the end of December 2015, the system of credit institutions reached a capital adequacy ratio of 13% (the prescribed minimum level is 9%) and fully met the ratios of solvency and short-term capital for providing medium and long-term loans in accordance with the law. The size of the financial market, including the stock market, maintained its growth momentum. Discipline and discipline in the money market and in the banking sector are strengthened, improving the healthy and safe level of the business environment. The system of credit institutions has both restructured and ensured continued growth to support the economy. The average lending interest rate decreased from 17.9% in 2011 to 9.08% in 2015, thanks to which credit growth gradually improved. In the context of a sharp decrease in deposit interest rates, an increase in total capital mobilization from the economy of the system of credit institutions shows that the public's confidence in the banking system has improved.

However, restructuring the financial system has many limitations such as the slow change in the structure of the financial market, the mobilization and allocation of medium and long-term investment capital still relies heavily on the financial system. commercial banks, while the participation of non-banking institutions is relatively limited. Although the size of the stock market has grown rapidly, it has not yet become the most important medium and long-term funding channel for the corporate sector. Capital market institutions are not fully developed, especially there are no credit rating agencies. In addition, many systemic and long-term weaknesses of credit institutions have not been fundamentally resolved, especially the problem of bad debt, cross-ownership and risky banking management; Some commercial banks have not been completely handled, which is very weak and shows signs of bankruptcy. Therefore, the risk of the whole system and the risk of each credit institution is still very large.

Regarding the limitations of budget expenditure restructuring, it can be seen that the state's spending scale is still large, not effectively controlled, continuously increasing rapidly and in danger of exceeding the current capacity of the State. economy, limiting the development investment potential of the country. State budget balance continues to be difficult, the budget deficit persists, public debt is still increasing rapidly and nearly reaching the ceiling of 65% of GDP, the Government debt has exceeded the ceiling of 50% of GDP, the proportion of investment and development spending has dropped sharply only. remaining 15.2% of the total budget expenditure in 2015, affecting the scale of public investment in areas necessary to promote labor productivity such as infrastructure, education - training, and technology.

In that context, the research results in the monograph "Restructuring the financial system in Vietnam" have helped to clearly identify the problems of restructuring the financial system after the crisis, on that basis. propose policy recommendations to continue restructuring the financial system in an effective manner, more suitable to the new context of the domestic and world economy.

First, some suggestions on the format of the Vietnamese banking system after restructuring:

Clearly define the structure of state, private and foreign ownership according to the trend of decreasing state ownership rate.
Developing multi-functional financial group models.
Build the preconditions for the establishment of an investment bank.
Separating policy lending activities from commercial banks.
Defining the scope of activities of rural and urban commercial banks.

Second, create leverage for Vietnamese commercial banks to follow Basel II regulations:

Supplement the second pillar through the promulgation of more regulations on supervision and assessment of the implementation and observance of the capital adequacy ratio prescribed by banks in the system, and at the same time taking measures to handle and remedy the situation. for banks that do not meet the capital requirements as prescribed by the State.
Supplement conditions and limits on credit extension for stock investment and trading of commercial banks and foreign bank branches, and at the same time reducing the risk coefficient for securities and real estate investment loans.
Adjust the payout reserve ratio based on the difference in the liquidity of the reserve assets.
Supplement the charter specifying the limit for short-term assets used for medium and long-term loans.
Consider amending the purchase of capital, contribution of shares between parent and subsidiary companies, affiliated companies, if necessary, may not allow the act of buying and contributing capital between these companies.
Promulgate amendments to regulations on entrustment, holding shares of other credit institutions or limiting the level of stock holding, classification of subjects participating in capital contribution of specific credit institutions, and regulations on share ownership levels. With different shares and shares for different positions in the Board of Directors of a credit institution, each credit institution is entitled to contribute share capital according to the maximum percentage of how many percentages to other credit institutions.
Issue regulations on information disclosure time for the Credit Information Center (CIC), and at the same time improve its initiative.

Third, restructuring Vietnamese commercial banks according to Basel II:

Clearly define the structure of commercial banks according to Basel II standards in accordance with the characteristics, size, capacity and capabilities of the bank.
Clearly defining the implementation of Basel II is an important goal, clearly planning a strategy for restructuring commercial banks in accordance with Basel II.
Consider the forms of restructuring commercial banks according to Basel II.
Re-establishing internal regulations, rearranging the banking governance model, risk management, information management in accordance with the provisions of Basel II and other regulations of the State Bank.

Some solutions to restructure commercial banks can be applied in parallel with the process of restructuring commercial banks according to Basel II standards.
Clearly identify the agency in charge of directing, supporting the implementation and the participants in the process of restructuring and managing risks of commercial banks in accordance with Basel II standards.
State management agencies in finance and banking should create an environment for the implementation of Basel II for commercial banks.
Establishing relationships and enhancing the role of Basel II as an implementation consultant in the process of building and perfecting the institution for the implementation of Basel II; carry out supervisory coordination with the supervisory body of the Basel Committee.
Strengthen the implementation of inspection and control, build a transparent information disclosure system according to the guidance in the Basel II Treaty.

Fourth, enhance the efficiency of the restructuring process of Vietnam's commercial banking system:

Increase the rate of private ownership in banks, even in equitized SOCBs.

Focus on improving corporate governance capacity of Vietnamese commercial banks.
State management agencies need to study fully, comprehensively and diversify the experience of bad debt settlement of countries in the region in the restructuring process.

Fifth, some recommendations for restructuring Vietnam's real estate market:

Establishing a new structure of the legal corridor for the formation of a diversified financial system to support the real estate market.
Maintain and develop market structure of rental housing and social housing.
Increase the use of tax tools to create revenue for the state budget and as a tool to regulate the market.
Develop and perfect the debt market according to international practices.
Breakthrough in structural change of the real estate market: Developing a secondary market for real estate credit and real estate financial products.
Promote human resource training for the real estate market according to international standards.

Sixth, improve the quality of information disclosure of listed companies in the process of restructuring the stock market:

Complete the legal framework and guiding document system
Increase the enforcement capacity of the market regulator
For listed companies: Improve understanding of social responsibility and the importance of corporate governance.

Seventh, operating fiscal policy: