State Bank of Vietnam Governor Nguyen Van Giau
A recent regulation requires commercial banks to increase their capital adequacy ratios and take other risk provision measures no later than October 1. Banks are now saying they need more time to comply with the strict regulations. State Bank of Viet Nam Governor Nguyen Van Giau spoke to Viet Nam News reporter Ha Phuong about the controversy surrounding Circular No 13/2010/TT-NHNN.
Some commercial banks are complaining that compliance with Circular No 13 poses too great a challenge. What do you think?
The pivotal purposes of monetary policy are to stabilise the value of the currency and ensure the security of the banking system. With Viet Nam integrating more deeply into the global financial community, the circular also aims to bring our financial system to a higher level. Credit institutions will benefit from a strong and secured banking system.
Meanwhile, the circular is just a pilot scheme at a low level. Some economists have even complained that some ratios in the circular were still too low. When the amended Law on Credit Institutions takes effect next January 1, standards will be even stricter.
Banks which do not take the advantages of the circular to improve their risk management should review their own businesses. What are they afraid of?
Regulations currently require commercial banks to hold 20 per cent of total deposits in reserve and restricts them from making use of non-term deposits made by State entities. In total, an estimated 35 per cent of total deposits are kept idle. Do you think this requirement is too strict?
Non-term deposit may be made in the morning and withdrawn in the afternoon. It becomes very easy for banks to lose liquidity if they do not have solid reserves. Companies and fund managers also move these kinds of deposits very quickly to maximise profits.
But non-term deposits of the State Treasury and Social Insurance funds at Agribank have reached VND133 trillion (US$6.93 billion). Some say that keeping all of this money idle is not only wasteful but risky. What do you think?
I’m also concerned about this problem. As much as VND56 trillion ($2.9 billion) in State Treasury deposits are held in commercial banks. But these kinds of deposits are not stable.
In principle, State Treasury deposits must be kept in the State Treasury or the State Bank of Viet Nam. Increasingly, however, these funds have been kept at commercial banks. Many of these banks, especially Agribank, have sought to include these funds in the total deposits. This situation just doesn’t occur in any other country.
When the new Law on the State Bank of Viet Nam takes effect, the State Treasury will be required to open accounts at the central bank. In some special cases, the central bank will delegate commercial banks to hold the deposits.
In terms of social insurance funds, commercial banks shouldn’t be too happy to get ahold of this kind of deposit. If the deposit is withdrawn, the banks frequently face difficulties. You can ask Vietinbank or Agribank.
Don’t forget what happened before the lunar new year last year, when the State Treasury and the Social Insurance Fund suddenly withdrew VND20 trillion ($1 billion). If the central bank hadn’t intervened in a timely manner, the system would have been stuck with a major problem.
What will happen to banks that can’t balance their capital structures in compliance with the circular?
We have prepared two solutions. In the first, if credit quotas are available, the central bank will support the banks. In the second, the State Bank will give them a timeline strategy to remove these deposit portfolios from their capital balance sheets.
How does Circular No 13 compare with the Basel standards?
Regulations in the circular are long ways from Basel I and II. The global financial market is going to apply Basel III but we are still here.
Viet Nam News
