Trang Chủ
The mandatory transfer of a weak bank involves a decision by competent state authorities to transfer it to a viable, well-capitalized bank. In this process, the acquiring bank assumes all liabilities and assets of the failing bank, including both non-performing and performing assets. As a result, all deposits, whether held by individuals or entities, are fully protected, since the responsibility for repayment lies with the acquiring bank. This approach helps maintain public confidence, as depositors can feel secure continuing to place their funds with the acquiring bank. In the early stages of such a transfer, the Deposit Insurance of Vietnam may provide financial assistance to support the acquiring bank in resuming normal operations. However, identifying a suitable acquiring bank is time-consuming as it requires evaluating asset quality, calculating asset-liability gap, and estimating various costs associated with the transfer. Consequently, some jurisdictions opt for alternative, more efficient resolution strategies in practice.
A widely adopted approach involves transferring deposits and good assets to a healthier acquiring bank. The advantage of this method is that it protects depositors, particularly individual depositors, from losses they would otherwise incur in the event of a bank’s liquidation or bankruptcy. This type of transfer helps maintain the stability of the banking system, avoids negative impacts on the broader financial system and economy, and mitigates the risk of a financial crisis. For the acquiring bank, the transfer offers several potential benefits. These include gaining new customers, such as depositors and borrowers, and acquiring good assets. This enables the bank to expand its scale and scope of operations, improve its asset quality, and boost profits by providing additional banking services. Because of these market-driven incentives, more banks may be willing to participate voluntarily, promoting a market-oriented resolution process (rather than one driven solely by regulatory compulsion), and thereby stabilizing the market more quickly. In such cases, the Deposit Insurance of Vietnam may provide initial financial support to facilitate the transfer and ensure that depositors' interests remain fully protected, thus reinforcing public confidence in the banking sector.
However, this method also has its challenges. The restructuring process by transferring deposits and good assets may still incur significant administrative and financial costs. Moreover, it requires a thorough and time-consuming valuation of both performing and non-performing assets. Furthermore, if not implemented transparently and effectively, the process could damage the weak bank’s reputation. Protecting the deposits and assets of weak banks can lead to moral hazard, as others may assume that they too will be rescued by the Government, thus reducing their motivation for sound risk management. Handling the non-performing assets left behind at the weak bank is particularly difficult. In many countries, such assets are transferred to an asset management company (AMC), such as Vietnam Asset Management Company (VAMC) in Vietnam, or sold to private investors. However, this is also a prolonged and challenging process.
Therefore, the acquiring bank must be capable of evaluating and managing the risks associated with the transferred assets, which can be demanding. The integration of new assets and customers into the existing system may also require significant time and resources. Additionally, the acquiring bank must ensure that the acquisition does not negatively affect its reputation or brand image. Consequently, only banks with sufficient financial capacity, effective risk management, and the ability to absorb and integrate new business will be eligible to participate. The number of potential acquirers depends on several factors, including adequate capital and financial strength to absorb the new assets, the ability to conduct due diligence and risk management of the transferred assets, and strategic business plans to make full use of the new assets and customers.
In conclusion, restructuring weak banks by transferring their deposits and good assets to healthier institutions offers both advantages and disadvantages. This approach requires careful consideration and must be implemented in a transparent and efficient manner to safeguard the stability of the banking system and economy. The Deposit Insurance of Vietnam can also play a crucial role by providing financial support to the acquiring bank, thereby facilitating the process, safeguarding depositors, and strengthening public confidence in the banking system./.
Department of Research and International Cooperation (translation)
