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Based on banks’ own reports and domestic accounting standards (VAS), these estimates were tentative at best given weaknesses in banks’ accounting data that hamper a consistent and stringent assessment of NPLs across all banks.
Consisting mainly of directed loans and uncollateralized NPLs.
The Khmer Rouge (1975–79) were set to build an agrarian, moneyless society.
International experience shows that a successful transition toward a sound commercial banking system depends on progress in all these areas (De Juan, 1996).
An 8 percent capital adequacy requirement was adopted in 1999 but not enforced.
Resolution of collateralized NPLs, which are typically to the private sector, was sped up by streamlining regulations on the sale of collateral, permitting banks to bypass the state auction center.
Two phases of recapitalization have been completed by June 2003, providing banks with nonnegotiable recapitalization bonds of D 5.3 trillion (nearly 1 percent of GDP).
This program is similar to the restructuring of semiprivate small joint-stock banks in Vietnam, whose number was reduced from 48 to 35 under a program supported by the IMF’s Poverty Reduction and Growth Facility with a view to strengthening banks’ capital base through consolidation or liquidation.
A credit policy has been in effect in The Lao P.D.R. since March 2002, which would limit new lending (except for undisbursed loans) if flow NPLs (i.e., new NPLs since 2000) exceed 15 percent.
For example, neither some SOCBs nor the supervisors have so far been able to quantify the impact of the new classification scheme on the amount of overdue loans.
Another indicator of banking system performance—spreads between lending and deposit rates, to the extent they reflect actual transaction rates—may indicate that Vietnamese banks operate at relatively low margins. While this could point to relative efficiency, insufficient loan loss classification, and provisioning requirements combined with limited commercial decision making, as mentioned above, make a comparison difficult.
The accession process to the European Union (EU) has also provided a significant impetus to institutional reform. For an in-depth review of SOCB reforms in the transition economies of Eastern Europe and the CIS countries see Sherif and others (2003).
For a discussion of the intricate links between enterprise and bank reform in Eastern Europe see van Wijnbergen (1998) and Borish and others (1996).
In Vietnam, the current compensation scheme of SOCB management rewards balancesheet growth while not penalizing risky businesses. SOCB managers’ salary, like that of other SOEs, is tied to the size of their enterprise and some profit-related portion, which however is unadjusted for risks.
The most important concessions under the USBTA include: (1) phase-in of national treatment in the dong deposit market; (2) national treatment in equity participation in privatized SOCBs; and (3) majority foreign ownership of banking institution after three years of the agreement.