Is forcing bank mergers the solution to Vietnam's credit crisis?

BBVA warns weak banks should first be recapitalized by the government before being merged.

ABF: Is forcing bank mergers the solution to Vietnam's credit crisis?

BBVA: Alicia Garcia Herrero, Chief Economist for Emerging Markets
Forcing mergers in Vietnam’s credit crisis can help if the acquiring bank were strong enough to absorb the losses of the weak bank without endangering the soundness of the strong bank. Is that possible in Vietnam? The answer is yes but, in my mind, under two conditions: (i) the weak banks should be recapitalized by the government before being merged (i.e., at least avoid them having negative capital when being merged). (ii) In addition, foreign banks should be allowed to manage banks in Vietnam (which means lifting the limit of 20% single ownership existing today). In fact, foreign banks could bring management skills which should enhance the functioning of the Vietnamese banking system and a better allocation of resources.

Deloitte Consulting: Mohit Mehrotra, Regional Head of Financial Services, Strategy & Operations
Forcing bank mergers will help strengthen the banking system in the short run, at least. In the longer term these measures will have to be supplemented with structural changes in the banking system. Vietnam’s commercial banking market has been driven by the race for assets which led to rampant credit growth. However, relatively weak risk management practices has led to the build-up of poor quality assets. It’s difficult to manage this growth if the underlying fundamentals of banking system are weak. Mergers need to be augmented by other measures to better manage the current situation in Vietnam.