Luận Văn Restructuring in banking sector, theory and lessons from different countries in the world

Chuyển dịch cơ cấu trong lý thuyết ngân hàng, khu vực và các bài học từ các quốc gia khác nhau trên thế giới

FOREIGN TRADE UNIVERSITY
FACULTY OF BANKING & FINANCE
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GRADUATION THESIS

RESTRUCTURING IN BANKING SECTOR
THEORY AND LESSONS FROM DIFFERENT COUNTRIES IN THE WORLD

Class : CLC2- Banking& Finance

Hanoi, May 2012


INTRODUCTION

1. Rationale of the study
In the scenery of an unstable world economy with potential risks such as high consumer goods prices, reducing economic growth rate, worsening public debt crisis and high inflation pressure, Vietnam’s economy has to face with lots of challenges. Facing all these difficulties, the State Bank of Vietnam (SBV) and all other authorities try to carry out the Resolution No 11/NQ-CP dated February 24[SUP]th[/SUP] 2011 of the Government and conclusions in National Meeting 3- Period XI to curve inflation, stabilize macro-economy, maintain economic growth rate to increase the quality, efficiency and competition in the economy.
In 2012, the government prioritizes to focus on three plans of restructuring in public sector investment, restructuring in state-owned enterprises and restructuring in financial institutions, especially commercial bank restructuring. On December 6[SUP]th[/SUP] 2011, the SBV officially announced the first merger among three commercial banks, including Sai Gon Commercial bank, Tin Nghia Commercial Bank and First Commercial Bank.
Restructuring in banking sector is carried out when the banking system does not work effectively with many signs of banking crisis. In the case of Vietnam, it shows a large number of credit institutions and a rapid credit growth rate whereas they have low soundness ratios, too high interest rate and inflation rate and a limited sources of fund. The above action to merge three Vietnam’s commercial banks is a necessary action and it is one of the first actions in the restructuring plan to reduce the number of weak banks, protect the rights of depositors and strengthen banking system and the financial system in general.
That raised the question of how to restructure the banking system in Vietnam. We all know that there are many countries which used to restructure their banking system in the world and these cases can be good lessons for Vietnam on its way to 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 with the aim to take a deeper look on the problem of restructure in banking sector by studying cases around the world and withdrawing valuable lessons of bank restructure for the case of Vietnam.
2. Objectives of 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 international case studies of bank restructuring in different countries around the world in order to withdraw valuable lessons for Vietnam, the purpose of this thesis is to make recommendations for Vietnam banking system in bank restructuring process.
3. Methodology
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.
4. Scope of the study
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.
5. Structure of the study
Chapter 1 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 2 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 3 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.


TABLES OF CONTENTS


TABLES OF CONTENTS. ii
ACKNOWLEDGEMENT iv
LISTS OF ABBREVIATIONS. v
LISTS OF TABLES & FIGURES. vi
INTRODUCTION 1
CHAPTER 1: THEORETICAL BACKGROUND ABOUT RESTRUCTURING IN BANKING SECTOR 4
1.1. Definition of restructuring in banking sector. 4
1.1.1. Definition of restructuring in banking sector. 4
1.1.2. The reasons for bank restructuring. 7
1.1.3. Sequence and time of bank restructuring. 9
1.2. Methods for restructuring banks. 11
1.2.1. General assistance. 11
1.2.2. Managing bad assets. 17
1.2.3. Ownership changes. 18
1.2.4. Strengthening the regulatory structure. 20
1.3. Conditions for a successful restructuring case. 21
1.4. Impacts of bank restructuring. 22
1.4.1. Positive impacts. 22
1.4.2. Negative impacts. 24
CHAPTER 2: LESSONS FROM BANK RESTRUCTURING OF DIFFERENT COUNTRIES IN THE WORLD 25
2.1. Bank restructuring in Malaysia 1997. 25
2.1.1. Economic and financial background. 25
2.1.2. Methods of bank restructuring in Malaysia. 26
2.1.3. Results. 35
2.1.4. Conclusions. 36
2.2. Bank restructuring in Indonesia 2003. 38
2.2.1. Economic and financial background. 38
2.2.2. Methods of bank restructuring in Indonesia. 40
2.2.3. Results. 47
2.2.4. Conclusion. 49
2.3. Bank restructuring in Chile 1980s. 51
2.3.1. Economic and financial background. 51
2.3.2. Methods of bank restructuring in Chile. 52
2.2.3. Results. 58
2.2.4. Conclusions. 60
2. 4. 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. 71
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
2.5.4. Strengthening the regulatory. 74
CHAPTER 3: APPLICATIONS OF INTERNATIONAL EXPERIENCES TO VIETNAM AND RECOMENDATIONS TO VIETNAM’S BANKING SYSTEM . 77
3.1. Overview about banking sector in Vietnam 77
3.1.1. History of banking system in Vietnam 77
3.1.2. Structure of banking sector in Vietnam 78
3.1.3. Characteristics of Banking Sector 80
3.1.4. The need for restructuring. 82
3. 2. Applications of world-wide lessons for Vietnam 83
3.2.1. Similarity in Vietnam’s banking system with case studies. 83
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. 3.1. Actions government has taken. 91
3.3.2. Methods to restructure Vietnam’s banking system 93
3.4. Recommendations to authorities. 95
CONCLUSION 97
BIBLIOGRAPHY 99

LISTS OF TABLES & FIGURES

Chart 1.1: Definition of bank restructuring. 6
Table 1.1: Theory about methods of bank restructuring. 11
Chart 2.1: Net Non-Performing Loans in banking sector- Malaysia. 26
Table 2.1: Malaysia restructuring agencies. 28
Chart 2.2: Danaharta- Asset management and disposition. 30
Table 2.2: Classification of Indonesian Banks. 41
Chart 2.3: Bank recapitalization scheme in Indonesia. 42
Figure 2.1: Summary of bank restructure in Indonesia 1999. 44
Figure 2.2: Real cost of Restructuring in Indonesia. 45
Table 2.3: Restructuring methods in Chile. 50
Table 2.4: Restructuring projects in Chile. 51
Chart 2.4: Non-performing Loans (% credit portfolio) 58
Table 2.5: Methods of bank restructuring in Spain. 59
Table 2.6: Laws issued in Spain. 60
Chart 2.5: Number of branches of banking system in Spain. 62
Table 2.7: Sources of funds for commercial and Savings banks. 64
Figure 3.1: Vietnam Banking Sector Loans by Institution Type. 72
Figure 3.2: Business indicators- Vietnam Banking Sector 2010. 76