(12 March 2012 – Asia) Vietnam has committed to a drastic solution as it is faced with the impending disintegration of its banking industry.Vietnam will buy bad debt from banks under a plan approved by Prime Minister Nguyen Tan Dung this month to prevent a collapse of its banking system.
The Ministry of Finance will buy collateralized bad debts from commercial banks to strengthen their balance sheets under a plan to overhaul the industry by 2015.
The bailout aims to cut bad debt ratios at state-owned banks to below 3 percent by 2015, to minimise the risk of a full blown banking crisis that could seriously threaten the economy.
“Restructuring, fixing and strengthening the banking system with the lowest cost will eliminate the risk of a collapse of the banking system” and ensure macroeconomic, social and political stability, Dung said.
Vietnam will clean up and strengthen banks’ balance sheets by 2015, and classify commercial banks into three categories. The State Bank of Vietnam and the Ministry of Finance will be responsible for managing the banks’ bad debt.
In the past months, Vietnam has accelerated efforts to fix its banking system heavily burdened by bad debt after rapid credit growth in recent years fuelled a trade deficit and Asia’s fastest rate of inflation.