FOREIGN TRADE UNIVERSITY FACULTY OF BANKING & FINANCE -*** GRADUATION THESIS RESTRUCTURING IN BANKING SECTOR THEORY AND LESSONS FROM DIFFERENT COUNTRIES IN THE WORLD Class : CLC2- Banking& Finance Hanoi, May 2012 TABLES OF CONTENTS FOREIGN TRADE UNIVERSITY i TABLES OF CONTENTS ii ACKNOWLEDGEMENT iv iv LISTS OF ABBREVIATIONS .v LISTS OF TABLES & FIGURES .vi INTRODUCTION CHAPTER 1: THEORETICAL BACKGROUND ABOUT RESTRUCTURING IN BANKING SECTOR 1.1 Definition of restructuring in banking sector 1.1.1 Definition of restructuring in banking sector 1.1.2 The reasons for bank restructuring 1.1.3 Sequence and time of bank restructuring 10 1.2 Methods for restructuring banks 11 1.2.1 General assistance .12 1.2.2 Managing bad assets 17 1.2.3 Ownership changes 19 1.2.4 Strengthening the regulatory structure 20 1.3 Conditions for a successful restructuring case 21 1.4 Impacts of bank restructuring 23 1.4.1 Positive impacts 23 1.4.2 Negative impacts 24 CHAPTER 2: LESSONS FROM BANK RESTRUCTURING OF DIFFERENT COUNTRIES IN THE WORLD 26 2.1 Bank restructuring in Malaysia 1997 26 2.1.1 Economic and financial background 26 2.1.2 Methods of bank restructuring in Malaysia 27 2.1.3 Results 36 2.1.4 Conclusions 37 2.2 Bank restructuring in Indonesia 1997 39 2.2.1 Economic and financial background 39 2.2.2 Methods of bank restructuring in Indonesia 41 ii 2.2.3 Results 48 2.2.4 Conclusions 50 2.3 Bank restructuring in Chile 1980s 53 2.3.1 Economic and financial background 53 2.3.2 Methods of bank restructuring in Chile .54 2.2.3 Results 59 2.2.4 Conclusions 61 Bank restructuring in Spain 2011 62 2.4.1 Economic and financial background 62 2.4.2 Methods of bank restructuring in Spain 63 2.4.3 Conclusions 70 2.5 Experiences withdrawn from case studies 71 2.5.1 General assistance .71 2.5.2 Managing bad assets 73 2.5.3 Ownership changes 73 CHAPTER 3: APPLICATIONS OF INTERNATIONAL EXPERIENCES TO VIETNAM AND RECOMENDATIONS TO VIETNAM’S BANKING SYSTEM 76 3.1 Overview about banking sector in Vietnam .76 3.1.1 History of banking system in Vietnam 76 3.1.2 Structure of banking sector in Vietnam .77 3.1.3 Characteristics of Banking Sector .79 3.1.4 The need for restructuring 82 Applications of world-wide lessons for Vietnam .84 3.2.1 Similarity in Vietnam’s banking system with case studies 84 3.2.2 Applications for world-wide lessons for Vietnam .85 3.2.3 Chances and challenges for applications of international experiences 89 3.3 Solutions for Vietnam’s banking system 91 3.1 Actions government has taken 91 3.3.2 Methods to restructure Vietnam’s banking system 93 3.4 Recommendations to authorities 96 CONCLUSION 97 APPENDIX 99 iii BIBLIOGRAPHY .100 ACKNOWLEDGEMENT This graduation paper has been completed with the remarkable help of many people to whom I am grateful First and foremost, I offer my sincerest gratitude to my supervisor, Professor Mai Thu Hien, who has supported me throughout my thesis with her patience and knowledge She has shared thoughtful suggestions and valuable comments on every chapter of my work Her guidance helped me throughout the research and writing of this thesis Without her, this thesis could not have been completed My sincere thanks go to my examiners for their time in reading my thesis and their valuable suggestions I am also indebted to all my lectures at Faculty of Banking& Finance for their profound knowledge throughout my four-year course at Foreign Trade University Finally, special thanks to my family for their patience, understanding and encouragement during the time I research and write this graduation thesis Hanoi, May 2012 iv LISTS OF ABBREVIATIONS ACM ATM BCA BNM CAMEL CAR CDRC CINB Danaharta Danamodal EU FDIC FRA FROB GDP IBRA JSCBs M&A NPLs RTC RTE RM SAs SBV SOCBs US VAS WB Asset Management Corporation Automated Teller Machine Bank Central Asia Bank Negara Malaysia Capital, Assets, Management, Earnings & Liquidity analysis Capital Adequacy Ratio Corporate Debt Restructuring Committee Continental Illinois National Bank Pengurusan Danaharta National Berhad Danamodal National Berhad European United Nations Federal Deposit Insurance Corporation Finance Sector Restructuring Agency Fund for the Orderly Restructuring of the Banking Sector Gross Domestic Products Indonesian Bank Restructuring Agency Joint Stock Commercial Banks Mergers and Acquisitions Non- Performing Loans Resolution Trust Corporation Restricted Tender Exercise Ringit Malaysia Special Administrators State Bank of Vietnam State-Owned Commercial Bankss The United States of America Vietnamese Accounting Standard World Bank v LISTS OF TABLES & FIGURES FOREIGN TRADE UNIVERSITY i TABLES OF CONTENTS ii ACKNOWLEDGEMENT iv iv LISTS OF ABBREVIATIONS .v LISTS OF TABLES & FIGURES .vi INTRODUCTION This paper is written using combined methods: descriptive analysis, statistical analysis and comparative analysis Data are collected from various sources such as the text book, financial journals, working papers or projects of well-known organizations around the world, research papers of doctors, professors in banking and finance sectors in famous research institutions and downloads from relevant websites in the internet .2 The thesis focuses on banking restructure realities in some emerging countries in the world, including Malaysia, Indonesia, Chile and Spain because economic and financial background of these countries have many things in common with Vietnam before restructuring period Refer to the time range researched, the writer mainly analyzes the period of last sixteen years- from 1995 to 2011 for the reason that this time period is when restructuring plans of these countries happen .2 Chapter presents the theoretical background of banking restructure in the world, including definition, reasons to restructure, methods to restructure, conditions to restructure, impacts of restructure on the economy and potential risks of restructuring activity Chapter studies about cases of restructure in banking system of some emerging countries in the world, by going through the problems of their banking system, their restructuring method to the results they get From that the writer concludes the valuable lessons about banking restructure Chapter gives an overview about banking system in Vietnam: its history, its structure, its recent characteristics and the demand for a restructure plan The thesis applies the above world-wide lessons into Vietnam case, after that it gives the solutions for restructuring in Vietnam’s banking system and recommendations to authorities CHAPTER 1: THEORETICAL BACKGROUND ABOUT RESTRUCTURING IN BANKING SECTOR 1.1 Definition of restructuring in banking sector vi 1.1.1 Definition of restructuring in banking sector Individual bank restructuring .4 Systemic bank restructuring .5 Chart 1.1: Definition of bank restructuring .6 Crisis-led restructuring and voluntary restructuring 1.1.2 The reasons for bank restructuring Chart 1.2: Reasons for bank restructuring .8 1.1.3 Sequence and time of bank restructuring 10 Chart 1.3: Sequence of bank restructuring 10 1.2 Methods for restructuring banks 11 Table 1.1: Theory about methods of bank restructuring 11 1.2.1 General assistance .12 Establishment of a restructuring agency 12 Bank liquidation .12 Prevention of moral hazard problems 13 Deposit insurance .14 General assistance 15 Capital injections 16 1.2.2 Managing bad assets 17 Resolving non-performing loans (NPLs) 17 Management and sale of assets 17 1.2.3 Ownership changes 19 Mergers & acquisitions of domestic banks 19 Foreign takeovers .19 Public ownership 20 1.2.4 Strengthening the regulatory structure 20 1.3 Conditions for a successful restructuring case 21 1.4 Impacts of bank restructuring 23 1.4.1 Positive impacts 23 Job creation 23 Impacts on lending behavior of commercial banks 23 Impacts on consumers 24 1.4.2 Negative impacts 24 Impacts on employment 24 CHAPTER 2: LESSONS FROM BANK RESTRUCTURING OF DIFFERENT COUNTRIES IN THE WORLD 26 2.1 Bank restructuring in Malaysia 1997 26 vii 2.1.1 Economic and financial background 26 Chart 2.1: Net Non-Performing Loans in banking sector- Malaysia .27 2.1.2 Methods of bank restructuring in Malaysia 27 Capital Adequacy and Loan Activity .27 Establishment and operation of restructuring agencies 28 Table 2.1: Malaysia restructuring agencies 29 July 1998 29 By the Government 29 June 20, 1998 29 By Ministry of Finance 29 August 10, 1998 29 BY Bank Negada Malaysia 29 Solve 47 cases with total debt amount of 43.98 billion 29 Number of banks reduced from 69 to 30 banks in 10 groups 29 Amount of NPLs increased from RM 19.73 billion 1998 to RM 45.5 billion 1999 .29 Average recovery rate is about 50-60% 29 Amount of capital injection declined from RM 6.4 billion to RM 5.3 billion by the end of 1999 29 All of these amount was repaid in 2003 29 Corporate Debt Restructuring Committee (CDRC) 29 Danaharta 31 Chart 2.2: Danaharta- Asset management and disposition 31 Requirements for NPLs to be acquired by Danaharta 33 Process of acquiring NPLs by Danaharta 33 Restricted tender .34 Open tender 34 Danamodal 34 Danamodal Nasional Berhad (Danamodal) was incorporated on August 10, 1998 as a wholly-owned subsidiary of Bank Negara Malaysia By the statement on the establishment of the Special Purpose Vehicle (SPV) to recapitalize and consolidate the banking sector on July 13, 1998, Bank Negara Malaysia announced the details of the establishment of the SPV to spearhead the recapitalization and restructuring of domestic banking institutions The SPV was incorporated and known as Danamodal and commenced its operations in September 1998 Danamodal was formed as a limited liability corporation 34 2.1.3 Results 36 2.1.4 Conclusions 37 viii 2.2 Bank restructuring in Indonesia 1997 39 2.2.1 Economic and financial background 39 2.2.2 Methods of bank restructuring in Indonesia 41 Initial responses 41 Initial bank restructuring plan 41 Official restructuring methods 42 Establishment of Restructuring Agency 43 Operations of IBRA 43 Rehabilitation and recapitalization 44 Table 2.2: Classification of Indonesian Banks 45 Chart 2.3: Bank recapitalization scheme in Indonesia 46 Figure 2.1: Summary of bank restructure in Indonesia 1999 48 2.2.3 Results 48 Figure 2.2: Summary of Bank Industry highlights 1999 .49 Figure 2.3: Real cost of Restructuring in Indonesia 50 2.2.4 Conclusions 50 2.3 Bank restructuring in Chile 1980s 53 2.3.1 Economic and financial background 53 Figure 2.4: Chile’s Credit Boom 1980s 53 2.3.2 Methods of bank restructuring in Chile .54 Restructuring plan 54 Restructuring methods 55 Table 2.3: Restructuring methods in Chile 55 Restructuring methods 55 Industry entry requirements .55 Lending limit 55 Related lending 55 Loan classification 55 Effective supervision 55 Capital adequacy 55 Self-correcting safeguards 55 Limited guarantee for deposits 55 Disclosure requirements 55 Corporate Governance 55 Full adoption of a risk-based supervisory model .55 An update of loan classification and provisioning system .55 Compliance of local accounting rules with international standards 55 ix Preparation and implementation of Basel II .55 Regulatory changes 56 Lending limit 56 Related lending 56 Supervisory developments 58 2.2.3 Results 59 Cost of resolving crisis .59 Results 60 2.2.4 Conclusions 61 Bank restructuring in Spain 2011 62 2.4.1 Economic and financial background 62 Economic crisis 62 Chart 2.4: Non-performing Loans (% credit portfolio) 62 The sovereign debt crisis 63 The need for restructuring 63 2.4.2 Methods of bank restructuring in Spain 63 Table 2.5: Methods of bank restructuring in Spain 63 Issuing Royal Decree Law .64 Table 2.6: Laws issued in Spain 64 Support to the voluntary merger of viable institutions .64 Promotion of crisis resolution at non-viable institutions 64 Transparency and stress tests 65 Balance sheet write-downs .66 Consolidation 66 Reduction in capacity .67 Chart 2.5: Number of branches of banking system in Spain 67 (Source: BBVA- Bank Restructuring in Spain) 67 New corporate model for savings banks 67 Improved governance .68 Increase in solvency requirements 68 Recapitalization 69 Table 2.7: Sources of funds for commercial and Savings banks 69 Issuing instruments to qualify new core capital ratio .69 Foreign subsidiary will seek funds by their parents 69 15% banks in this group raise funds through investment in stock market 69 1% intends to merge 69 8% submit recapitalization plans (smaller than years) to the central bank to ask for aid funds 69 x consequences after a period of banks’ liberalization (for the case of Indonesia and Chile), and the cost of restructuring process (for three cases) These factors should be considered carefully before entering into any restructure process The last case study is the case of Spain, with one striking point comparing to three above cases is that the restructure process is currently on its way to complete On one hand, the three cases above help to withdraw lessons for Vietnam in the sense that those countries have similar economic and financial conditions, hence the restructure method they use may be of great use in case of Vietnam On the other hand, the case of Spain, despite of differences in financial background to Vietnam, it still helps Vietnam in banking restructure process because the measures they use have been the latest and most efficient ones so far, which are more or less suitable to apply in our current society, when the whole world are threatened by the fear of Greek public debt crisis, unfavorable financial background and unstable micro- and macro-economic factors In the Spanish restructure plan, the most striking lesson is that they set up a very clear and careful regulations system for restructure The reason might be that they have researched thoroughly about banking restructure in the world and realized one simple rationale: the more carefully the laws state, the more successful they will get This idea was also true for the case of Chile above Hence, within years 2010 and 2011, the government issued “Royal Decree Law” and kept editing and updating it The issue of Royal Decree Law 09/2010, known as the FROB Law (“FROB” by its Spanish abbreviation), marks the first action of restructuring in Spain, which laid the legal foundations for the restructuring of the savings bank sector by setting an intense process of savings bank mergers and integrations After two months, Royal Decree-Law 11/2010 was issued, which permit savings banks to opt to pursue their activity through a commercial bank and thus enable them to tap capital markets to strengthen their core capital and improve their governance Next, Royal Decree-Law 2/2011 introduced a new capital ratio of either 8% or 10% to be met with core capital instruments and provided for financial support by the Fund for the 88 Orderly Restructuring of the Banking Sector Until now the government still does research to adjust or announce new regulations to the system Besides, Spanish government uses other methods to restructure such as: measure of transparency and stress tests which imposed a stress test on the European banking sector conducted in July 2010, when the institutions not reaching the level of capital can be obliged by the Banco de España to increase their capital; measure of consolidation which embarked upon 12 integration processes to reduce the total number of institutions from 45 to 18; measure of reduction in capacity which cuts of between 10% and 25% in the number of offices and of between 12% and 18% in staffing Moreover, improved governance, increase in solvency requirements and recapitalization are other measures that Spain used in its restructure process “Improved governance” shows the change in number of members and composition of the board of directors, maximum term of office, establishment of an appointments and remuneration committee, etc; while “Increase in solvency requirements” lays down a new “core capital” ratio, whereby institutions shall comply with a level of core capital of 8% of risk-weighted assets, or 10% when the risk involved is greater 3.2.3 Chances and challenges for applications of international experiences Chances The year 2011 has created some convenient conditions in economic background for year 2012, with tightening monetary policy (credit growth and M2 growth are under control The commercial banks are classified according to their financial health and their credit activities are regulated In 2012, the State Bank and the government have issued some new rules to create a stronger financial system Firstly, Circular No 04/2010/TT-NHNN dated 11th February 2010 on M&A activities in Vietnam, where the State Bank has specified the legal framework for M&A activity in Vietnam (gives clear definition, method of M&A, requirements in M&A process and responsibility of related authorities) Secondly, Circular No 35/ 2011/TT-NHNN dated 11 th November 2011 regulated about information disclosure requirements with banking system in 89 Vietnam Thirdly, Directive No 01/CT-NHNN dated 13 th February 2012 was issued about the general purpose of monetary policy in Vietnam 2012, key growth targets of financial indicators and ways to carry out the banking tasks required Lastly, Circular No 02/2012/TT-NHNN dated 27th February 2012 was about guidelines on foreign exchange transaction of foreign banks which have branches in Vietnam With the above regulations, the banks have succeeded in controlling loan in foreign currency, reducing the potential risk of dollarization The government have flexible exchange rate regime, have legal framework for M&A activities- which is forecasted to explode in banking system 2012, the number of banks reduced to only two third of the previous number, and have take the first steps to restructure banking system by requiring an information disclosure among banks In 2012, the banking system will have considerable changes, with encouraged mergers and acquisitions from the government with the aim that Vietnam’s banking system will become a strong system to service for domestic customers in the shortterm and to compete with other countries in the regions in the long-term Challenges The banking system also has to face with many difficulties in 2012, firstly with negative effect from European financial crisis, which rooted from the Greek public debt crisis lately The changes in political situation of Middle East and Africa can badly affect the whole world economy, then reduce foreign investment into Vietnam and weaken Vietnam’s import and export activities The gold market in the world continues to strongly affect domestic gold market, which causes an unstable gold and foreign exchange market With high inflation rate, although it is one-digit number, and the USD still remain high value in the world, the exchange rate USD/VND may come to 23.000 VND/USD level Bad debts still remain as a drawback for the system Loans in interbank market used to have less requirements and less regulations from the state banks, for example: interbank loans not have loan loss reserve and they are not classified (Group1-5), so they are not shown as the bad debt in accounting books The interest rate is not regulated clearly, sometimes it stands at 30% or more More seriously, when other banks cannot pay the loans on time, that amount will be revised again 90 and again That is very risky in normal time However, in the current economic situation, when many banks are illiquid, loans in interbank market become really dangerous and they can be a threat to the whole banking system To conclude, the year 2010 brings lots of chances for banking industry with special attention from the government and the State bank, yet the system will show its weaknesses and risks as a result of previous activities Expectation on the growth or banking system or the economy in general will depend on the actions from the management authorities and the attitude to overcome difficulties from banks 3.3 Solutions for Vietnam’s banking system 3.1 Actions government has taken Announce eight banking tasks in 2011 The Congress and the government have identified eight tasks for the banking system in 2011 as follows: Task 1: Focus on building and issuing timely and systematically guidelines of State Bank of Vietnam Law and Law on Credit Institutions to create a solid legal framework for banking activities; Task 2: Executing the proactive monetary policy, flexible and prudent under market principles, close coordination with fiscal and macroeconomic policies to control other inflation and macroeconomic stability, total means of payment increasing 2124 percent, credit to the economy goes up by about 23 percent Interest rates and exchange rates operated at the level consistent with macroeconomic balance, security systems, improving the efficiency of state management of the SBV; Task 3: To manage the exchange rate and foreign exchange management by market signals, in line with interest rate changes, harmonic balance of supply – demand for foreign exchange, improve market liquidity and promote exports, reduce imports deficit, decline the dollarization of the economy Coordinate with other concerned ministries to monitor and closely manage the gold market and foreign exchange markets; Task 4: Continue to improve credit quality, assess the actual credit quality of banks to adopt appropriate measures to strictly control the size, quality and structure of credit; 91 Task 5: Monitor, supervise and timely forecast macroeconomic changes, financial market performance in the country to serve effectively the direction and monetary operations, banking products; Task 6: Enhance detection, early warning of risks in banking activities Effectively combine between the inspection and supervision of the observance of laws and policies for inspection and supervision of risks in the activities subject to inspection and supervision of banks Task 7: To continue strengthening and reorganization of credit institutions consistent with international standards, increase transparency in banking operations; Task 8: To promote non-cash payment in Vietnam in 2011-2015 Propose three plans to restructure the banking system As the Saigon Economic Times- Online reported on 29 October 2011, the State Bank of Vietnam planed to restructure the local banking system with three proposed ways Firstly, the central bank will seek for restructuring the banking sector through technical methods with currently available tools For example, the SBV will strictly manage the deposit rate cap and interest rate levels, set different credit growth rates in 2012 for each commercial bank, etc If banks fail to meet the requirements of the central bank, their operating licenses will be withdrawn Besides, local lenders are asked to evaluate and quantify bad debts and clean up their balance sheets with loan loss provisions from their own funds or even the government’s budget The central bank, in the medium term, may request local banks with high bad asset level to raise their chartered capital to compensate for bad debts write-offs and must spare money for loan loss provisions or retain all profits to deal with bad debts Secondly, the SBV encourages commercial banks to carry out merger and acquisitions on voluntary basis However, in case banks are unwilling to perform the task, they will be put under special watch and possibly lose their autonomy Thirdly, the central bank will purchase shares to become state-shareholder of commercial banks and unwind its fund when possible 92 Classification of credit institutions The newly-issued Directive 01 has categorized local banks into four groups namely healthy, average, below average and weak, with the respective credit growths assigned for each group in 2012 being 17%, 15%, 8% and 0% However, government would keep secret the identities of the banks belonging to each group and only send specific notices to each credit institution The reason is that this year the central bank made diagnosis and prescription in accordance with the health status of each credit institution, basing on that to make the above classification In conclusion, the government has required as solid legal framework for banking activities with the aim to peg credit growth rate, improve market liquidity, improve credit quality, inspect and supervise and increase transparency in the banking system Moreover, the government has paid attention to manage the deposit rate and interest rate, require banks to clean up their balance sheets with loan loss provisions (from their own funds or even the government’s budget) and engage in merger and acquisitions Lastly, the government wants to hold controlling shares in weak commercial banks 3.3.2 Methods to restructure Vietnam’s banking system Basing on the above experiences withdrawn and similarities between Vietnam’s banking system and the cases study, combining with a large number of research on recent restructure problems of banking system in Vietnam, the author suggests the most suitable solutions for banking system in Vietnam as follows Package 1: General methods In the first place, Vietnam government should set up specialized organizations in restructuring period with a clear objective, with clear functions and estimated operating time, including one that helps borrowers to direct their debt restructuring to it without having to resort to legal proceedings & receive comments, one to remove bad assets and to undertake strategic investments in financial institutions, and one to recapitalize and consolidate the banking sector and inject capital in case needed 93 The problems of costs of restructuring should also be considered since the first step Together with the set-up of restructuring agencies, the government and central bank have to estimate the costs needed for each plan and each period If the government cannot give a clear plan for bank restructuring, they can never be successful Another key ingredient in market structure has been efforts to restore bank capital If banks can attract funds by its private means, they can submit a recapitalization plan to the central bank and the government If theirs are reasonable and possible, they will receive the recapitalization funds in the form of direct support or government bonds Deposit insurance is other method that we should consider to use in restructuring process Such insurance was critical to the avoidance of persistent bank runs, as is evidenced by the case of Indonesia Together with the presence of a deposit guarantee, capital is the co-payment that protects the guarantor through aligning the capital owner’s incentives with the guarantor Complying with capital adequacy standards and other requirements such as Basel Accord are essential elements of a successful restructuring process Package 2: Management of bad assets Dealing with nonperforming loans is the key issue to restore a bank’s health The methods for resolving this might be: Regulatory issues (loan loss provisioning standards, tax treatment, timing of provisioning), using of bad loans centralized asset management companies (AMCs) and legal support for loan restructuring or foreclosure and liquidation Package 3: Change in ownership M&A has become the most approachable method of resolving banking system in Vietnam on the condition of a large number of banks and limited operation ability The government has announced that in the near future, commercial banks in Vietnam will be merged, leaving only 10 large banks that have strong capacity, enough to serve domestic industries and compete to other banks in the same region 94 One solution is the method to deal with unviable institutions, such as closing down, merging or rescuing banks These measures are very important because it can gain confidence and become incentives for future risk-taking by banks When accessing the viability of banks, strong banks have priority to develop and compete domestically and internationally, weak banks are restructured to operate in accordance with legal regulations The banks with temporary lack of liquidation will be supported to recover Package 4: Strengthening regulatory structure Besides the actions of mergers, takeovers or privatizations, the changes in management of banks are very important Banks should invest money on improve the ability of manager by training programs, stress tests, etc In the restructuring process, state bank and healthy banks will be the major force in restructuring, who will supply governance, regulations and human resources to take part in this process To protect rights of depositors and related authorities, risky and weak banks will be put under special control Increasing the strength of financial supervision and legal framework are really necessary Bank restructuring can never be done without a clear legal framework and a supervision of agencies The government should build up a very clear and careful regulations system for restructure, including: Industry entry requirements (requirements for applicants for a new bank license, or those planning to take control of an existing institution), requirements of lending or deposit activities and focusing on compliance of those rules Finally, we should focus on main business activities of banks, reduce risky and inefficient fields of business The banking system should prioritize on three main sectors in Economic and Social Development Strategy 2011-2020 of the government: agriculture, export, associated industry, production and small & medium-sized enterprises by taking the first steps to change from dependence in credit activities into non-credit activities, diversifying and increase the standard of banking services In conclusion, the government need to make a transparent financial system, focusing on resolving bad debts and assuring enough capital as required The 95 government should consider changing the banking management system to comply with international standards such as Basel Accord People’s Credit Fund, Micro Finance institutions and other credit institutions should also be regulated so that the financial system will operate safely and effectively 3.4 Recommendations to authorities To the government and State bank Continue renewing and completing regulatory documents about banking activities, including CAR ratio, standard for risk management; regulations about loans classification and provision for loan loss complying with international standards; regulations about business establishment and closures Increase the effectiveness of banking supervision activities Coordinate the above methods to restructure the credit institution system so that until 2015, credit institution system in Vietnam is basically transparent and efficient with downsizing number of banks Some strong commercial banks will be much more competitive and larger when the state bank still maintains its influence in the banking system This restructure process should be carried with the lowest cost possible and without causing negative impact on macro economy To the commercial banks Commercial banks should revise its activities and correct current weaknesses in operation and management itself Besides, commercial banks should strictly follow rules and regulations from the government and State bank to restructure the system and coordinate with other banks in the same system, for instance, healthy banks help weak banks for the purpose of creating a stronger banking system in Vietnam 96 CONCLUSION Mark Twain once said: “History doesn’t repeat itself but it does have a rhythm” In deed learning from past experiences always bring good lessons, particularly when Vietnam is currently under the similar economic condition as other countries were in their past restructuring process Studying about the issue of restructuring in banking sector, the thesis presents three main problems The first chapter has presented general theory about bank restructuring activities, by going through the detail definition of the term “bank restructuring” (individual and systemic bank restructuring, crisis-led or voluntary restructuring), mentioning the various methods to restructure the banking system (general assistance, management of bad assets, change in ownership and strengthening the regulatory structure), referring to conditions for a successful restructuring process; to the impacts of bank restructuring on different economic issues- in both positive and negative perspectives Chapter two studied four cases of bank restructuring in Malaysia, Indonesia, Chile and Spain Each case study has its own interesting lessons Firstly, bank restructuring process in Malaysia involves in establishment of three restructuring agencies in the period of about five years with a consolidated banking system However, the results were not very persuasive when Malaysia only keeps NPLs at a managerial level The lesson is that this country is still lack of independent supervision and prudential regulations The legal framework must be strengthened in line with the best international practice Secondly, in the case of Indonesia, the operation of restructuring agency IBRA, especially recapitalization program has caused this country a huge amount of costs Despite of some good results, the overall banking system still remain week This case leaves us many experiences about how to build up restructuring plan so that it can correct the weakness of banking system without too much cost Thirdly, Chile is the most successful restructuring case study, which gives us the lessons of a strong political determination, a sound macroeconomic policy, institutional development, the increasing financial integration and a new banking framework consistent with 97 modern concepts of prudential regulation and effective supervision Lastly, Spain is the case that the restructuring process has just started Although the results have not been defined yet, the lessons we can learn from Spain is that: Regulatory restructuring plays a vital role (the government has issued three laws and regulations for the restructuring plan) Chapter three studies the characteristics of banking system in Vietnam and presents the need for a restructuring process By analyzing the similarity between the financial and economic condition before bank restructuring period of Vietnam and four countries, the author withdraws possible lessons from world-wide case studies Finally, chapter three gives solutions for Vietnam’s banking system and recommendation for authorities in their ways to restructure our banking system 98 APPENDIX Summary of restructuring methods in four case studies Malaysia Indonesia Authorities conduct banking restructure Bank Danamodal IBRA Chile Spain Issue Laws on Applied recapitalization recapitalization Set up clear recapitalization Mediation of CDRC Jakarta debt workout (Corporate Initiative Task Debt Force strategy Applied Applied Applied Issue PROB Restructuring Committee) Ownership changes Closures None 64 Banks State-takeovers commercial (18%) 12 bank, commercial merchant Banks bank, and (20%) financial Banks Law to solve problems of M&A in banking companies system under central bank Mergers Law & Saving control (12%) mergers of of state finance banks to be companies merged into a and single commercial bank (54%) banks (2%) 99 Dealing with NPLs Centralized Danaharta IBRA Major asset Purchased (Indonesian amendment to management assets Bank Law on lending corporation are valued by Restructuring limit, related buys assets at independent Authority) lending and subsidized outside loan prices Type of assets auditors Loans larger classification to transferred than million Worst assets Applied reduce NPLs ringgit, and mostly loans secured by property or shares Changes in corporate governance and management of banks Corporate Changes in State bank Effective New corporate governance top management supervision model for management changed with rule-based savings banks In majority- supervisory Improved owned model governance Effective Transparency domestic banks in of Management 33 banks Limited Limited and stress tests BIBLIOGRAPHY Banco de Espana, 2011, Note on the savings bank restructuring processSituation in July 2011 100 BTA- Agreement between the United States of America and Vietnam on Trade relations Circular 13/TT-NHNN Circular No 02/2012/TT-NHNN dated 27th February 2012 Circular No 04/2010/TT-NHNN dated 11 th February 2010 on M&A activities in Vietnam Circular No 35/ 2011/TT-NHNN dated 11th November 2011 Claudia Dziobek and Ceyla Pazarbas, 1998, Lessons from Systemic Bank Restructuring: A Survey of 24 Countries De Juan, 1998, Clearing the decks: experiences in banking crisis resolution Decree 10/2011/ND-CP 10 Decree 141/2006/ND-CP 11 Directive No 01/CT-NHNN 12 Duangkamol Prompitak, 2009, The impact of bank mergers and acquisitions on bank behavior 13 Enrique Marshall, 2006, Bank crisis and restructuring- The Chilean Experience 14 Federal Reserve Bank of San Francisco, 2011, Banking reform in Vietnam 15 Fries, S M and T D Lane, 1994, Financial and enterprise restructuring in emerging market economies 16 Garcia, 1999, Deposit insurance: a survey of actual and best practices 17 Goodhart, C, P Hartmann, D Llewellyn, L Rojas-Suárez and S Weisbord, 1998, Financial Regulation: Why, How and Where Now? 18 ITO Takatoshi, RIETI Hashimoto Yuko, Bank Restructuring in Asia: Crisis management in the aftermath of the Asian financial crisis and prospects for crisis prevention –Malaysia 19 John Hawkins and Philip Turner, 1999, Bank restructuring in practice 20 John Mylonakis, Nikiforou, Glyfada, 2006, The Impact of Banks’ Mergers & Acquisitions on their Staff Employment & Effectiveness21 Lawrence J Radecki, 1997, Potential Employment Effects of the Restructuring of Retail Banking 22 Linh Thuy Quach, 2011, Vietnam Banking Sector Report 101 23 Margery axman, 1998, A legal framework for systemic bank restructuring 25 Mari Pangestu, 2003, The Indonesian Bank Crisis and Restructuring: Lessons and Implications for other developing Countries 26 Sheng, A, 1991, The art of bank restructuring: issues and techniques 27 UNI-Europa Finance, 2010, The Impact of Mergers and Acquisitions in the Banking and Insurance Sector, 28 W Alexander, J Davis, L Ebrill, and C.J Lindgren, 1997, Systemic Bank Restructuring and Macroeconomic Policy 29 WTO- Agreement between the World Trade Organization and Vietnam 102 ... restructure the financial system Considering the above reasons, the topic Restructuring in banking sector, theory and lessons from different countries in the world is chosen for my graduation thesis... the study Based on making a complete understanding about problem of restructuring in banking system both in theory and in practice, by presenting theory about bank restructuring, then analyzing... 1: THEORETICAL BACKGROUND ABOUT RESTRUCTURING IN BANKING SECTOR 1.1 Definition of restructuring in banking sector 1.1.1 Definition of restructuring in banking sector So far bank restructuring