Vietnam to force weak banks into bankruptcy

Announcement sends shock waves through banking sector counting on government protection.

The State Bank of Vietnam for the first time has said that weak and unprofitable banks would be forced into bankruptcy. Under a new SBV regulation, weak credit institutions in the danger of falling into insolvency will be put under the central bank’s special control and forced to increase their chartered capital.

SBV will request the credit institutions to restructure or merge with other financial institutions as a means of staying solvent. And if this doesn’t work, banks would be forced into bankruptcy.

SBV said increasing the pressure on banks would force bank owners, especially those who own weak banks, to act more responsibly. It said the biggest barrier to restructuring is the lack of cooperation from big shareholders of weak banks.

Analysts said the present high liquidity in the banking sector means that forced bankruptcies will not severely impact the sector.