Ph.D Le Xuan Nghia says this is not the right time to let banks collapse

By Khanh Mai - Nov 12, 2017 | 06:44 AM GMT+7

TheLEADERThe problem of bank failure has been debated within the National Assembly, leading to public concern.

Ph.D Le Xuan Nghia says this is not the right time to let banks collapse
Ph.d Le Xuan Nghia (Photo:

Ph.D Le Xuan Nghia, an economist, says Vietnam’s financial system is still too underdeveloped to consider allowing banks to go bankrupt. The stock market remains small and inflation is still a concern. Financial instability has become a public concern among people in the world in generally, and in Vietnam in particular.

People may pour money into dollars and gold

Vietnamese people have deposited large amounts of money into banks. This is the operating capital of the entire business community system.

Le Xuan Nghia found that many people deposited up to VND110 billion (roughly US$4.85 million) in banks when they do not know where to invest their money.

However, if a bank goes bankrupt, people can only get an insurance payment of VND75 million (roughly US$3306.88).

The financial market, including banking, securities, and insurance, is faltering. The stock and insurance markets account for only four per cent of the total assets of the financial market, while the rest 96 per cent goes into the banking system.

Under such underdeveloped financial conditions, people will tend to pour money into foreign currencies and gold which is safe and easy to invest instead of risky stock and real estate markets. Many Vietnamese projects face capital scarcity, and discussing the possibility of bankrupt banks could induce a public panic.

For banks, trust plays top role

If allowing some banks to fail is vital at this time, there must be some regulations related to the government’s decision to insure all deposits. However, the government must implement the regulations carefully to ensure the trust amongst people. Trust is always the most important factor when implementing any money-related activities.

For example, in 2008, some European countries switched from partial insurance to full insurance in order to ensure the absolute faith amongst people.

However, there should be different ways to bankrupt banks for different economies instead of applying the international experience.