IMF published its staff report and selected issues report in context of the 2017 Article IV consultation with Vietnam. The Article IV consultation highlights that macro-prudential policies were tightened in Vietnam, while credit growth was robust. Bank reforms have progressed, but nonperforming loan (NPL) resolution, bank recapitalization, and legal reforms to strengthen market discipline have been sluggish.
The staff report emphasizes that the pace of reforms should be accelerated and key reforms to strengthen banks include faster NPL recognition, recapitalization by existing shareholders, including from the budget for state-owned banks, and resolution of nonviable banks. Progress has been made in addressing legacy NPLs as state-owned commercial banks (SOCBs) have reduced their impaired loan ratio (NPLs, NPLs sold to Vietnam Asset Management Company (VAMC), and previously restructured loans) from 13.7% in June 2015 to 5.7% in December 2016. However, progress in addressing NPLs has been uneven among SOCBs. The reported capital adequacy ratio (CAR) is 9.9% for SOCBs and 11.8% for private domestic banks. Although above the regulatory minimum of 9%, reported CARs reflect the reported NPL ratio of 2.46%, not the more broadly defined impaired assets ratio estimated by staff at 8.4%. The full adoption of Basel II scheduled for 2020 will reduce CARs by 200 to 400 bps. The legal framework for bank resolution should be developed and deposit insurance strengthened. The tightening of risk weights for real estate loans and prudential ratios for asset-liability mismatches are welcome. Enhancing the anti-money laundering and counter financing of terrorism, or AML/CFT, framework in line with international standards and its effective implementation will also support financial stability.
The selected issues report discusses the issues related to climate change risks and highlights that the country’s financial system remains bank-centric and dominated by state-owned banks. Non-bank financial institutions are relatively small and are only now being actively nurtured. The four major state-owned credit banks account for 45% of the banking sector assets and provide half of total credit which, despite cutbacks in recent years, remains heavily tilted toward the state-owned enterprises sector. Vietnam could benefit from further financial development, improving access to financial services, and developing capital markets and institutions. The report also discusses the NPL situation in Vietnam and highlights that weak capital buffers make banks reluctant to resolve NPLs.
Keywords: Asia Pacific, IMF, Vietnam, Article IV, Basel II, Capital Adequacy, NPL
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