Featured Product

    IMF Publishes Reports on the 2018 Article IV Consultation with Vietnam

    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

    Featured Experts
    Related Articles
    News

    BaFin Publishes Submission Deadlines Under Solvency II

    BaFin published quarterly and annual submission deadlines on the Solvency II reporting page on its website.

    February 25, 2020 WebPage Regulatory News
    News

    RBNZ to Address Cyber Risk Through Risk Management Guidance

    RBNZ announced that it is strengthening its efforts to enhance resilience of the financial system from cyber threats, including developing risk management guidance and promoting information-sharing in collaboration with industry and other public organizations.

    February 25, 2020 WebPage Regulatory News
    News

    FSI Convened Meeting on Climate Risk Assessment in Financial Sector

    The Financial Stability Institute (FSI) of BIS issued a summary of the meeting held in Basel from February 20-21, 2020.

    February 24, 2020 WebPage Regulatory News
    News

    BCBS Updates Basel III Monitoring Workbook in February 2020

    BCBS updated the workbook for Basel III monitoring to version 4.1.2, for the collection of December 2019 data.

    February 24, 2020 WebPage Regulatory News
    News

    Bank of Finland Updates Validation Checks for AnaCredit Reporting

    Bank of Finland published Version 1.8 of the validation checks for credit data collection under the AnaCredit Regulation.

    February 24, 2020 WebPage Regulatory News
    News

    APRA Plans to Assess Climate Risks and Develop Prudential Guidance

    APRA published a letter that outlines its plans to undertake a climate change vulnerability assessment and develop a prudential practice guide focused on climate-related financial risks.

    February 24, 2020 WebPage Regulatory News
    News

    FDIC Publishes Guide to Help with Third-Party Risk Management

    The technology lab of FDIC (FDiTech) published a new guide to help financial technology, or fintech, companies and others partner with banks.

    February 24, 2020 WebPage Regulatory News
    News

    PRA Removes References to LIBOR in SoP on Pillar 2 Capital and SS20/15

    PRA published a policy statement (PS3/20) that provides updates to certain supervisory statements (SS20/15, SS28/15, and SS35/15) and statements of policy (SoP).

    February 24, 2020 WebPage Regulatory News
    News

    APRA to Transition to Annual Stress Testing of Large Banks in 2020

    APRA published key findings of the stress testing assessment conducted on authorized deposit-taking institutions.

    February 21, 2020 WebPage Regulatory News
    News

    BoE Updates Version 1.1.0 of Taxonomy for Form AS and Form FV

    BoE published the statistical notice 2020/01 that provides an update to Version 1.1.0 of the taxonomy for forms AS (MFI holdings of securities collection) and FV (Financial Vehicle Corporations return) and the associated validation rules.

    February 21, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4729