{"id":75106,"date":"2025-05-12T17:38:00","date_gmt":"2025-05-12T10:38:00","guid":{"rendered":"https:\/\/neu.edu.vn\/prof-dr-to-trung-thanh-what-are-the-solutions-to-declining-car-and-asset-quality-in-the-banking-system\/"},"modified":"2025-05-12T17:38:00","modified_gmt":"2025-05-12T10:38:00","slug":"prof-dr-to-trung-thanh-what-are-the-solutions-to-declining-car-and-asset-quality-in-the-banking-system","status":"publish","type":"post","link":"https:\/\/neu.edu.vn\/en\/prof-dr-to-trung-thanh-what-are-the-solutions-to-declining-car-and-asset-quality-in-the-banking-system\/","title":{"rendered":"Prof. Dr. To Trung Thanh: What Are the Solutions to Declining CAR and Asset Quality in the Banking System?"},"content":{"rendered":"

In an interview with Economics and Finance Magazine, Prof. Dr. To Trung Thanh, Head of the Department of Research Management at National Economics University (NEU), proposed a range of solutions for the sustainable development of the banking sector amid economic volatility.<\/em><\/p>\n

\"\"<\/em><\/p>\n

Prof. Dr. To Trung Thanh, Head of the Department of Research Management at NEU<\/em><\/p>\n

Reporter: How do you assess the current quality of the banking system?<\/em><\/strong><\/p>\n

Prof. Dr. To Trung Thanh: <\/strong>According to research in NEU\u2019s Vietnam Annual Economic Review 2024, Vietnam\u2019s banking system currently faces numerous challenges, particularly the marked divergence in capital adequacy ratios (CAR) between two groups of banks.<\/p>\n

Liquidity risk emerged in the banking system in 2024, as the sector-wide loan-to-deposit ratio (LDR) continued to rise because lending growth outpaced growth in customer deposits.<\/p>\n

Also affecting funding costs, the current account and savings account (CASA) ratio at many banks has been declining, forcing banks to rely on longer-term funding sources with higher interest rates, increasing funding costs and narrowing net interest margins (NIM).<\/p>\n

While banks calculating CAR under the State Bank of Vietnam\u2019s (SBV) Circular No. 41\/2016\/TT-NHNN are making considerable efforts to raise their capital adequacy ratios above the required 8%, the ratio among banks applying Circular No. 22\/2019\/TT-NHNN has been declining and is now below the required 9% threshold.<\/p>\n

The main reason lies in the pace of charter capital growth. Joint-stock commercial banks generally take the initiative to increase capital faster than banks with state capital, thereby maintaining higher CAR levels.<\/p>\n

However, with the stock market subdued and capital raising through share issuance proving difficult, many banks are turning to other ways of increasing capital, such as paying stock dividends, which is gradually becoming a trend among banks.<\/p>\n

Meanwhile, asset quality in the banking system is deteriorating. The system\u2019s nonperforming loan ratio has continued to rise since 2023, albeit at a slower pace, while provisions for loans classified as loss have declined. Furthermore, banks face numerous obstacles in resolving nonperforming loans. The real estate market remains subdued, and many banks have stepped up asset liquidation to recover debts. However, weak liquidity means that many high-value properties remain unsold despite substantial price reductions.<\/p>\n

In addition to market factors, institutional mechanisms have slowed the resolution of nonperforming loans. Several important provisions in the National Assembly\u2019s Resolution No. 42\/2017\/QH14 on piloting the resolution of nonperforming loans were not incorporated into the 2024 Law on Credit Institutions, limiting the rights of entities handling these debts.<\/p>\n

Reporter: In your view, what policies do banks need to ensure sustainable development, particularly as monetary policy is being eased to support economic growth?<\/em><\/strong><\/p>\n

Prof. Dr. To Trung Thanh:<\/strong> For the banking system to develop sustainably, regulators need to focus on two groups of solutions: strengthening financial soundness and conducting flexible monetary policy.<\/p>\n

Accordingly, banks, particularly commercial banks with state capital, need to step up efforts to improve their capital adequacy ratios to reach at least 11\u201312% under Basel II standards, while preparing for new Basel III requirements such as those in the draft Circular on CAR for commercial banks and foreign bank branches.<\/p>\n

At the same time, charter capital increases must be completed to reach a minimum of VND 15,000 billion for the group of commercial banks with substantial resources and VND 5,000 billion for the remaining group.<\/p>\n

Credit institutions need to strengthen efforts to prevent new nonperforming loans by maintaining lending standards, enhancing risk management, and improving early warning systems for nonperforming loans.<\/p>\n

Banks need support to resolve nonperforming loans thoroughly and effectively, including optimizing the use of provisions, applying legal measures for effective debt recovery, and promoting the trading and resolution of nonperforming loans through the Vietnam Asset Management Company (VAMC) and other debt trading companies.<\/p>\n

Regulatory authorities, particularly the SBV, need to develop the banking market by enhancing competitiveness, increasing transparency, and ensuring compliance with international standards and practices, such as Basel III, in the governance and operations of credit institutions.<\/p>\n

Alongside these measures, banking operations must remain safe, and efforts to rectify and restructure weak banks must continue to restore their financial soundness and enhance their financial capacity in terms of scale, quality, and efficiency, ensuring the safety of the system. Other laws relating to the resolution of nonperforming loans and the disposal of collateral securing those loans must also be comprehensively reviewed.<\/p>\n

\"\"<\/p>\n

Banks\u2019 2025 annual general meetings of shareholders highlighted numerous opportunities and challenges in the current context. Photo: SHB\u2019s general meeting of shareholders.<\/em><\/p>\n

Regarding monetary policy, the SBV needs to keep credit growth at 16% in 2025, prioritize capital flows into production, high-tech agriculture, and green credit, while strictly controlling credit to potentially risky sectors. In particular, legal barriers must be removed to encourage banks to provide social housing loans.<\/p>\n

Reporter: Regarding monetary policy, how should it be managed to both control inflation and help banks reduce funding costs?<\/em><\/strong><\/p>\n

The SBV should further reduce reserve requirement ratios for credit institutions focusing on vulnerable customers, such as small and medium-sized enterprises and those in agriculture and rural areas, or reduce credit information inquiry fees at the Vietnam National Credit Information Center (CIC) and deposit insurance premiums. This would help credit institutions cut costs and thereby lower lending rates further.<\/em><\/strong><\/p>\n

Prof. Dr. To Trung Thanh:<\/strong> Conducting monetary policy is a balancing act, guided by a proactive, flexible approach and close coordination with fiscal policy to control inflation, maintain macroeconomic stability, and support growth.<\/p>\n

The SBV needs to continue taking specific measures to reduce lending rates across the economy through monetary policy instruments and regulatory measures within its mandate.<\/p>\n

The SBV can adjust policy rates appropriately and require credit institutions to cut costs to further reduce lending rates, making it easier for businesses and individuals to access capital.<\/p>\n

The SBV needs to manage the exchange rate flexibly, adapting to global shocks. In 2025, the greatest exchange rate risks still stem primarily from international factors, such as persistently high U.S. dollar interest rates, the dollar\u2019s continued strengthening, geopolitical risks, U.S. tariff policies, and unpredictable trade wars.<\/p>\n

The SBV needs to continue managing the exchange rate flexibly within an appropriate trading band and remain ready to use intervention tools to maintain stability during periods of intense pressure.<\/p>\n

In the current context, the SBV\u2019s administrative interventions should be gradually removed, and the permitted exchange rate trading band should be widened further, moving toward a managed floating exchange rate when macroeconomic conditions allow.<\/p>\n

Reporter: Thank you for sharing your insights!<\/strong><\/em><\/p>\n

Source: Economics and Finance Magazine<\/a><\/em><\/strong><\/p>\n

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

In an interview with Economics and Finance Magazine, Prof. Dr. To Trung Thanh, Head of the Department of Research Management at National Economics University (NEU), proposed a range of solutions for the sustainable development of the banking sector amid economic volatility. Prof. Dr. To Trung Thanh, Head of the Department of Research Management at NEU Reporter: How do you assess the current quality of the banking system? Prof. Dr. To Trung Thanh: According to research in NEU\u2019s Vietnam Annual Economic Review 2024, Vietnam\u2019s banking system currently faces numerous challenges, particularly the marked divergence in capital adequacy ratios (CAR) between two groups of banks. Liquidity risk emerged in the banking system in 2024, as the sector-wide loan-to-deposit ratio (LDR) continued to rise because lending growth outpaced growth in customer deposits. Also affecting funding costs, the current account and savings account (CASA) ratio at many banks has been declining, forcing banks to rely on longer-term funding sources with higher interest rates, increasing funding costs and narrowing net interest margins (NIM). While banks calculating CAR under the State Bank of Vietnam\u2019s (SBV) Circular No. 41\/2016\/TT-NHNN are making considerable efforts to raise their capital adequacy ratios above the required 8%, the ratio among banks applying Circular No. 22\/2019\/TT-NHNN has been declining and is now below the required 9% threshold. The main reason lies in the pace of charter capital growth. Joint-stock commercial banks generally take the initiative to increase capital faster than banks with state capital, thereby maintaining higher CAR levels. However, with the stock market subdued and capital raising through share issuance proving difficult, many banks are turning to other ways of increasing capital, such as paying stock dividends, which is gradually becoming a trend among banks. Meanwhile, asset quality in the banking system is deteriorating. The system\u2019s nonperforming loan ratio has continued to rise since 2023, albeit at a slower pace, while provisions for loans classified as loss have declined. Furthermore, banks face numerous obstacles in resolving nonperforming loans. The real estate market remains subdued, and many banks have stepped up asset liquidation to recover debts. However, weak liquidity means that many high-value properties remain unsold despite substantial price reductions. In addition to market factors, institutional mechanisms have slowed the resolution of nonperforming loans. Several important provisions in the National Assembly\u2019s Resolution No. 42\/2017\/QH14 on piloting the resolution of nonperforming loans were not incorporated into the 2024 Law on Credit Institutions, limiting the rights of entities handling these debts. Reporter: In your view, what policies do banks need to ensure sustainable development, particularly as monetary policy is being eased to support economic growth? Prof. Dr. To Trung Thanh: For the banking system to develop sustainably, regulators need to focus on two groups of solutions: strengthening financial soundness and conducting flexible monetary policy. Accordingly, banks, particularly commercial banks with state capital, need to step up efforts to improve their capital adequacy ratios to reach at least 11\u201312% under Basel II standards, while preparing for new Basel III requirements such as those in the draft Circular on CAR for commercial banks and foreign bank branches. At the same time, charter capital increases must be completed to reach a minimum of VND 15,000 billion for the group of commercial banks with substantial resources and VND 5,000 billion for the remaining group. Credit institutions need to strengthen efforts to prevent new nonperforming loans by maintaining lending standards, enhancing risk management, and improving early warning systems for nonperforming loans. Banks need support to resolve nonperforming loans thoroughly and effectively, including optimizing the use of provisions, applying legal measures for effective debt recovery, and promoting the trading and resolution of nonperforming loans through the Vietnam Asset Management Company (VAMC) and other debt trading companies. Regulatory authorities, particularly the SBV, need to develop the banking market by enhancing competitiveness, increasing transparency, and ensuring compliance with international standards and practices, such as Basel III, in the governance and operations of credit institutions. Alongside these measures, banking operations must remain safe, and efforts to rectify and restructure weak banks must continue to restore their financial soundness and enhance their financial capacity in terms of scale, quality, and efficiency, ensuring the safety of the system. Other laws relating to the resolution of nonperforming loans and the disposal of collateral securing those loans must also be comprehensively reviewed. Banks\u2019 2025 annual general meetings of shareholders highlighted numerous opportunities and challenges in the current context. Photo: SHB\u2019s general meeting of shareholders. Regarding monetary policy, the SBV needs to keep credit growth at 16% in 2025, prioritize capital flows into production, high-tech agriculture, and green credit, while strictly controlling credit to potentially risky sectors. In particular, legal barriers must be removed to encourage banks to provide social housing loans. Reporter: Regarding monetary policy, how should it be managed to both control inflation and help banks reduce funding costs? The SBV should further reduce reserve requirement ratios for credit institutions focusing on vulnerable customers, such as small and medium-sized enterprises and those in agriculture and rural areas, or reduce credit information inquiry fees at the Vietnam National Credit Information Center (CIC) and deposit insurance premiums. This would help credit institutions cut costs and thereby lower lending rates further. Prof. Dr. To Trung Thanh: Conducting monetary policy is a balancing act, guided by a proactive, flexible approach and close coordination with fiscal policy to control inflation, maintain macroeconomic stability, and support growth. The SBV needs to continue taking specific measures to reduce lending rates across the economy through monetary policy instruments and regulatory measures within its mandate. The SBV can adjust policy rates appropriately and require credit institutions to cut costs to further reduce lending rates, making it easier for businesses and individuals to access capital. The SBV needs to manage the exchange rate flexibly, adapting to global shocks. In 2025, the greatest exchange rate risks still stem primarily from international factors, such as persistently high U.S. dollar interest rates, the dollar\u2019s continued strengthening, geopolitical risks, U.S. tariff policies, and unpredictable trade wars. The SBV needs […]<\/p>\n","protected":false},"author":9,"featured_media":49972,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[724,169],"tags":[],"class_list":["post-75106","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-information","category-latest-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/75106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/comments?post=75106"}],"version-history":[{"count":0,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/75106\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media\/49972"}],"wp:attachment":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media?parent=75106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/categories?post=75106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/tags?post=75106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}