Vietnam Construction Bank has been take over by the State Bank of Vietnam to prevent uncertainty in the market over its negative capital flow.

A transaction office of Vietnam Construction Bank

SBV deputy governor Nguyen Phuoc Thanh made the announcement on March 5. The decision followed several years of concern about the bank's liquidity.

Its former entity, TrustBank, was in 2012, put under special monitoring due to its liquidity crisis. In 2013, new investors changed TrustBank into Vietnam Construction Bank. However, difficulties continued and in 2015 shareholders stopped supplying additional capital. As a consequence, the bank was unable to meet the minimum capital requirements of VND3trn.

The SBV said it paid nothing for the bank, which will in due course be converted from a commercial bank into a one-member limited liability bank owned by the state.

Nguyen Van Tuan, deputy general director of the Bank for Foreign Trade of Vietnam (Vietcombank) will chair Vietnam Construction Bank. Two other officials of Vietcombank HCM City will be deputy general directors. The State Bank also appointed officials to the bank’s supervisory board to help the bank get through its current financial problems.

SBV deputy governor Nguyen Phuoc Thanh said the move should not be seen as nationalization, but rather as a commercial move to maintain stability in the banking sector, and SBV would make available VND40trn so the bank could continue interim operations.

"The government is buying back the bank to protect depositors and ensure stability in the banking system," Thanh said.

He said the SBV would take similar action in the future to deal with weak credit institutions with heavy bad debt or inadequate capital reserves, and named GPBank and Ocean Bank as likely candidates if they failed to address their financial problems.

Associated Professor Tran Hoang Ngan, head of the University of Finance-Marketing, said weak financial institutions often have only two alternatives, to go bankrupt or to seek rescue, usually through being nationalised.

Depositors are entitled to an insurance payout of a maximum VND50m.

"Maybe from 2016, after the banking system completes its restructuring, financial institutions will be simply allowed to go bankrupt, but the government does not want to go down that path just yet because it unsettles the market," Ngan said.

Dtinews.vn