General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 10, 2018

IMF published its staff report and selected issues report under the 2018 Article IV consultation with Vietnam. The IMF Executive Board Assessment reveals that the financial sector balance sheets, supervision, and risk management need to be further strengthened. A stronger financial sector can help improve the efficiency of financial intermediation to service the domestic economy and investment. The State Bank of Vietnam (SBV) should strengthen the macro-prudential framework by introducing leverage ratios, and countercyclical buffers (CCBs), complemented by policy tools to temper potential risks from consumer and mortgage loans (including loan-to-value (LTV) and debt service-to-income (DSTI) requirements. A strong and adequately funded deposit insurance scheme and an effective lender of last resort would be helpful in this regard.

The staff report explains that strong credit and asset price growth may be contributing to the build-up of risks in the financial system. Sustained high credit growth, high leverage, low bank capital buffers and the inflexible exchange rate could lead to balance sheet vulnerabilities. Vietnam must also prepare for cyber security risks and longer-term challenges of climate change and technological disruption. State-owned commercial banks (SOCBs) should be capitalized swiftly with government funds and by raising private-sector and foreign-ownership limits. It is critical to develop a macro-prudential framework and improve data quality on credit aggregates and balance sheet exposures to monitor and proactively manage risks. It is also important to ensure that sufficiently robust liquidity and crisis management frameworks are in place to provide legal and operational clarity regarding early intervention and communication to mitigate emerging financial-sector risks. To help SOCBs recapitalize with new equity issues, state ownership should be reduced below 65% and foreign ownership limits raised. The banks taken over by SBV should be restructured and sold to strategic investors or liquidated.

The staff report concludes that reforms so far have strengthened bank balance sheets. Bank profits and asset quality are improving in most large banks, helped by the strong economy and faster disposal of non-performing loans (NPLs). Legal changes in 2017 (Resolution 42) and higher real estate prices are facilitating the disposal of collateral and the restructuring of bad assets. Amendments to the Law on Credit Institutions are enhancing bank corporate governance by clarifying bankruptcy and other restructuring options. Several banks have used this opportunity to address legacy bad assets, raise profits, and boost capital. Large private banks are already close to the 8% capital adequacy ratio Basel II requirement. Overall, the banking system has become more competitive. However, important weaknesses remain in the form of low profits, thin capital , and high NPLs in some banks, and emerging financial risks. Capital buffers remain thin in some SOCBs and a few private banks. Reported NPL ratios are still high for some banks and could be higher still if ever-greening and connected lending were fully accounted for. Elevated equity prices are complicating the ability of banks to raise tier 1 capital (tier 2 capital limits have been reached by most banks). A market correction could affect household, corporate, and financial-sector balance sheets.

The selected issues report contains a feature on the recent developments in aggregate credit volumes, stock markets, and housing markets to examine whether financial market developments are in line with the economic fundamentals. Overall, asset prices and credit growth appear to be stronger than warranted by fundamentals, suggesting the need for tighter policies including a lower credit growth target by the central bank. The analysis is, however, substantially constrained by the data weaknesses. It is recommended that SBV should develop a macro-prudential policy framework, including LTV and DSTI requirements, to deal with future possibilities of excessive exuberance in the real estate market. However, in the staff report, the authorities indicated that macro-prudential policies such as loan-to-value (LTV) ratios and CCBs are under consideration but implementation would need to await the availability of better data and the transition to Basel II in 2020. Asset recovery should be accelerated by speeding up NPL resolution to less than the current 5–10-year timeframe, finalizing the implementing regulations for Resolution 42 to clarify enforcement, increasing the capital of Vietnam Asset Management Corporation (VAMC), and expanding fast-track court procedures to cover a broader category of NPLs. VAMC should stop warehousing bad assets; evolve into an asset management company by buying more NPLs at market prices in the near-term; and be gradually phased out over the medium-term. 


Related Links

Keywords: Asia Pacific, Vietnam, Banking, Article IV, Basel II, NPLs, Macro-prudential Framework, Capital Adequacy, IMF

Related Articles

EU Finalizes Regulation on Prudential Backstop for Bank NPEs Under CRR

Regulation (EU) 2019/630, which amends the Capital Requirements Regulation, or CRR (Regulation 575/2013), with regard to the minimum loss coverage for non-performing exposures (NPEs), has been published in the Official Journal of the European Union.

April 25, 2019 WebPage Regulatory News

FASB Issues Minor Improvements to Financial Instruments Standards

FASB issued an Accounting Standards Update (ASU No. 2019-04) that clarifies and improves areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825).

April 25, 2019 WebPage Regulatory News

APRA Grants License to New Authorized Deposit-Taking Institution

APRA announced that it has granted Judo Bank Pty Ltd a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

April 24, 2019 WebPage Regulatory News

BoE Report on Evaluation of Approach to Concurrent Stress Testing

BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing.

April 24, 2019 WebPage Regulatory News

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News

EIOPA Held InsurTech Roundtable on Use of Cloud Computing by Insurers

EIOPA had, on April 11, 2019, hosted its Fourth InsurTech Roundtable on the use of cloud computing by insurance undertakings.

April 17, 2019 WebPage Regulatory News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2963