The International Monetary Fund and World Bank expect to conclude next year their first analysis of Vietnam’s financial system, which may bolster government efforts to strengthen the banking sector and boost investor confidence.
The Financial Sector Assessment Program gauges the stability of a country’s financial system and identifies vulnerabilities that could trigger a crisis, via measures such as stress tests, according to a posting on the IMF website. It also examines the nation’s legal framework and financial infrastructure, such as its payments and settlements system.
The health of Vietnam’s banking system is a growing concern, with asset quality deteriorating and “delayed and inadequate” implementation of restructuring, the World Bank said yesterday. Moody’s Investors Service downgraded the nation’s credit rating in September, citing concerns that weaknesses in the banking sector may damage the government’s balance sheet.
“Many people, including other international financial institutions, have asked for more complete information on Vietnam’s banks and state-owned enterprises,” Sanjay Kalra, the IMF’s senior resident representative in Hanoi, said in an interview yesterday. “We are very encouraged by the decision of the government to participate in this program.”
Restructuring of state-owned companies is one of three areas of focus over the next five years, the ruling Communist Party said last year. The World Bank said yesterday that “limited progress” has been made, and that their inefficiencies are “a drag on long-term growth potential.”
“State-owned enterprises are important borrowers of the banks, and we have not yet seen adequate information about these borrowers,” Kalra said. The assessment will clear the way for “concrete reforms that can create a sound and healthy financial sector,” he said yesterday in a statement in Hanoi.
An initial mission came to Vietnam in the fourth quarter and a follow-up is planned for January, Kalra said. The assessment is expected to be completed in the first half of next year, and a decision on whether to publish it would be left to the Vietnamese government, he said.
The World Bank will encourage the government “to not be afraid to be public with it,” said Victoria Kwakwa, the lender’s country director in Vietnam.
“We will try and encourage them,” Kwakwa said in an interview today. “It’s good for them on the transparency front, and it will remove some of the question marks about Vietnam.”