Reporter: Could you briefly comment on the achieved results and shortcomings that need to be overcome in the process of restructuring the credit institution system in the 2011-2021 period?
Dr. Can Van Luc: During the period of 2011-2021, the legal framework on restructuring the credit institution system was more and more improved. The financial capacity of credit institutions is significantly enhanced when the charter capital of credit institutions increases sharply, especially in the 2016-2021 period; from 488 trillion VND at the end of 2016 to more than 775 trillion VND at the end of 2021, by May 2022 reached more than 790 trillion dong (ie 1.62 times). Capital adequacy ratio (CAR) remains around 11%-13%. The operation of the credit institution system is healthy, credit growth is quite good, averaging about 14.8% per year. In 2022 alone, by the end of June, credit has increased by 9.35% compared to the end of 2021; non-credit income (insurance cross-selling, digital banking services, payment, foreign exchange business, etc.) also increased positively, accounting for nearly 25% of total income, compared to 19.7% in 2016.
Profitability is quite high, increasing by 25-30% per year in the period of 2016-2020. In 2021 alone, profit before tax reach 198.8 trillion VND, rising 31.9% compared to 2020; The first 6 months of 2022 reached VND 131 trillion, up 32% over the same period. Besides, the average non-performing loan settlement speed is about 5.67 trillion VND per month (from August 15, 2017, to the end of December 2021), 1.6 times higher compared with 3.52 thousand billion VND per month for the period of 2012-2017. The awareness of people, businesses, and relevant authorities such as police, courts, and localities about non-performing loan handling has improved markedly.
Along with the mentioned results, there are still some shortcomings that need to be overcome in the coming time. Namely: (i) Increasing capital for commercial banks, especially commercial banks with State ownership, still faces many difficulties, while the scale, efficiency and financial capacity of Vietnamese commercial banks are still low compared with the region; (ii) The process of restructuring non-bank credit institutions (including 16 financial companies, 19 financial leasing companies, 1,181 people's credit funds, 04 microfinance institutions, etc.) still meets challenges; (iii) The role of the National Financial Supervisory Commission and the Deposit Insurance of Vietnam (DIV) is still unclear; (iv) NPL handling still faces many obstacles in the context of potential NPL increasing in the post-Covid-19 period; (v) The matter of digital transformation in the financial-banking industry in Vietnam still has many challenges such as the legal framework has not kept pace with the actual situation, the issue of risks in the network security, information safety, etc.
Reporter: So what are the goals of restructuring credit institutions for the period of 2021-2025, with an orientation to 2030, sir?
Dr. Can Van Luc: As we all know, on June 8, 2022, the Prime Minister issued Decision No.689/QD-TTg approving the Project "Restructuring the system of credit institutions in association with the non-performing loan handling in the period of 2021 - 2025". Accordingly, in this period, we set three main goals, including: (1) Create a clear and substantial change in the restructuring of the credit institution system associated with NPL handling; striving to reduce the number of credit institutions, basically deal with weak banks, not allowing new weak banks to arise, ensure the healthy and sustainable system of credit institutions by 2025; (2) Develop the credit institution system in the direction that domestic credit institutions play a key role, operate in a healthy, efficient, public and transparent manner, meeting the standards of banking safety pursuant to the provisions of law and international practices, towards the development level of the top ASEAN–4; (3) Speed up the handling of NPL, improving credit quality, preventing and minimizing newly arising NPL; improving the financial capacity of credit institutions; preventing cross-investment, cross-ownership and manipulative and dominant ownership in relevant credit institutions.
Reporter: With the above objectives, do you suggest any specific solutions for the policy, sir?
Dr. Can Van Luc: As you can see, there is still a lot of work to be done. I propose that, firstly, we need to continue to improve the legal system in the financial - banking sector such as: moving towards legalizing NPL handling; supplement and amend the Law on State Bank, Law on Credit Institutions, Law on Deposit Insurance, develop a trial legal framework for new business models (fintech, digital banking, digital currency, etc.). Accelerate the process of restructuring financial markets and credit institutions towards international standards. Have a policy framework and develop specific resolution plans to limit systemic risks. Improve the capacity of management, supervision, stabilization of the financial - monetary system, in the direction that the management and supervision agencies need to be more independent and empowered. It is necessary to clarify and increase the role of the National Financial Supervisory Commission and the Deposit Insurance of Vietnam. At the same time, credit institutions need to actively transform digitally, constantly upgrade information technology infrastructure, network security, information, system data, etc.
Reporter: As you just mentioned, how do you think about the role of the DIV in the process of restructuring credit institutions in the past and in the coming time?
Dr. Can Van Luc: It can be said that the role of DIV has become clearer and clearer in recent legal documents. Specifically, in the 2017 revised Law on Credit Institutions, it is stated that the DIV cooperates with the Special Control Board and the credit institutions under special control to develop a bankruptcy plan and submit it to the SBV for consideration; coordinate with the Special Control Board to evaluate the feasibility of the recovery plan for credit institutions under special control; credit institutions under special control and entitled to the recovery may borrow special loans with preferential interest rates up to 0% from the professional reserve fund of DIV. DIV has the right to buy long-term bonds of credit institutions that support the restructuring process. According to Decision No.689/QD-TTg dated June 2022, there is a request to study, review, amend and supplement the Law on the State Bank, the Law on Credit Institutions, the Law on Deposit Insurance, and other regulatory relevant laws in the direction of doing research and supplementing functions and tasks of DIV to participate more deeply and effectively in the process of restructuring weak credit institutions.
And most recently, according to Decision No.1382/QD-NHNN dated August 2022 promulgating the Action Plan to implement the project "Restructuring credit institutions associated with NPL handling in the 2021-2025 period" under Decision No.689 dated June 2022: The deposit insurer must continue to review, research, amend the Law on Deposit Insurance and related legal documents in the direction of supplementing the functions and tasks of the DIV to participate in the restructuring of weak credit institutions; study to amend the law to use the fund to deal with weak PCFs, etc.
Accordingly, DIV is assigned the task of making special loans to specially controlled credit institutions; buying long-term bonds of supporting credit institutions; participating in assessing the feasibility of the recovery plan of People's Credit Fund, microfinance institutions, financial companies; participating in the development of the bankruptcy plan of the specially controlled credit institutions, participating in the Special Control Board, etc. That means, in the provisions of the law, the role of the deposit insurer has been emphasized and clarified. The problem is how to actually implement it.
Reporter: What solutions do you suggest to enhance the role of the DIV in the process of restructuring credit institutions, sir?
Dr. Can Van Luc: The above-mentioned contents are functions and duties that have not yet been specified in the Law on Deposit Insurance. And in order to strengthen the role of the deposit insurance mechanism as well as that of the DIV in the process of restructuring credit institutions, we need to seriously study to amend and supplement the Law on Deposit Insurance so that it is in sync with the current legal framework, in line with the actual situation and towards international practices. The creation of a clear legal framework for deposit insurance activities, in line with practical needs and international practices, helps to enhance the position and role of the deposit insurance organization. As a result, the Deposit Insurance of Vietnam can participate more deeply and effectively in the process of restructuring the credit institution system, with a view to better protecting the legitimate rights and interests of depositors, and contributing to maintaining the stability of credit institutions, ensuring the safe and healthy development of banking activities.
I think that the DIV also needs to proactively improve the efficiency of coordination in professional activities as well as focus on improving the level and capacity of human resources, applying information technology, building and implementing the "digital transformation" plan to be able to meet the new task requirements. The management authorities also need to pay attention to creating conditions for the DIV to increase its financial capacity, have a risk prevention mechanism, build a systematic financial safety net and a coordination mechanism to handle the financial and monetary crisis, if any. In the future, DIV also needs to study a more "multi-functional" deposit insurance organization model so that it can become a monitoring channel from the market side for the system of credit institutions, with enough information and data to classify the different types of insured institutions on the basis of risk level, capable of analyzing the position of the whole banking industry to show a specific level of risk, thereby early detecting signs of potential risks in financial and banking activities. Thereby, it helps to create motivation for the deposit insurer to manage risks proactively, effectively and to better protect the legitimate rights and interests of depositors in the process of restructuring and developing credit institutions in the future.