Vietnam must inject 24 billion into its failed bank, 6% of GDP
Vietnam has staged an "unprecedented" bailout of Saigon Joint Stock Commercial Bank, a lender engulfed in the nation's largest financial fraud, according to three bank documents and new official information provided to Reuters by a person with access to documents. There is talk of an intervention of the order of 24 billion dollars.
“Without loans from public authorities SCB will collapse,” according to new information provided to Reuters. “If the lending continues, the national treasury will gradually dry up.” The news is reported by Reuters
The new information also describes the situation as “unprecedented” due to the massive volume of the cash injections, the complexity of the operation and the extent of existing and potential damage to Vietnam's financial system.
Reuters was unable to establish whether the conclusions about the impact on state coffers were widely shared by other officials currently involved in monitoring the SCB.
Vietnam's public debt remained stable last year at 37% of gross domestic product, while the budget deficit increased slightly to 4.4% of GDP. Foreign reserves were about $100 billion at the end of the year, according to the central bank. This is an increase from around $90 billion at the end of October, according to the independent regional watchdog ASEAN+3 Macroeconomic and Research Office.
This means that there is budget space to be able to intervene, even if the burden will be considerable: the current public debt is around 160 billion dollars, so the intervention is of the order of 15% of the public debt that will have to be issued, approximately 6% of GDP. However, for now the funds have been provided by the Central Bank and there is no obligation to transfer them to public debt. Vietnam, fortunately for them, is not in the EU.
By early April, the Southeast Asian nation's central bank had pumped $24 billion in "special loans" to the SCB, according to one of the bank's documents seen by Reuters, which has provided daily updates since March 29 on the overall injections of the central bank.
Loans have slowed slightly, but have averaged more than $900 million per month over the past five months, according to that document, a second document with updates from March 15 to March 20, and a third November document with monthly updates since October 2022 to October 2023.
Everyone to collect deposits. A nice bank run in tropical sauce
The State Bank of Vietnam's previously unreported cash injections into the SCB amount to 5.6% of the nation's annual economic output, or about a quarter of Vietnam's foreign exchange reserves.
The central bank placed SCB under its supervision to stem a run on the bank sparked by the arrest of real estate tycoon Truong My Lan in October 2022. Since then, SCB has used injections to cover cash withdrawals, according to one of banking documents, which SCB sent to the central bank in November to account for its use of the loans.
After the central bank's intervention, SCB deposits plummeted by 80% to around $6 billion by December 2023, according to new official information from the source. It is a Bank Run on a scale that has perhaps not been seen for a century and which shows how the intervention of the authorities was too late.
SCB could run out of deposits by mid-year at the current rate, and bad loans have risen to 97.08% of SCB's credit balance in October: the loans, the assets, have dissolved into the air and those who have having paid his savings, constituting the bank's liabilities, he rushed to withdraw them before seeing it disappear. The problem is that without assets the state had to intervene…
Lan, the tycoon whose arrest in October 2022 sparked the bank's run, was sentenced to death last Thursday after being found guilty of organizing the fraud. She had pleaded not guilty to embezzlement and corruption charges for allegedly siphoning $12.5 billion in loans from SCB to shell companies, effectively controlling SCB through proxies.
Lan, once a leading figure in Vietnamese finance, will appeal the verdict at the People's Court in Ho Chi Minh City, one of his lawyers said.
Obviously Lang's death sentence did not improve the bank's situation, because it did not generate money out of thin air, but it will certainly have a dissuasive effect on the management of the sector.
Vietnamese dong
Bank restructuring sought
Vietnam's banking sector is already facing increased risks due to prolonged turmoil in the real estate sector. The fraud prosecution is part of the authorities' "fiery furnace" anti-corruption campaign, which triggered the housing crisis, weighing on the economy and clouding banks' prospects.
The central bank and government have repeatedly sought help for the SCB from the private sector, particularly by appealing to foreign investors, according to state media, despite restrictions such as a 30% cap on combined foreign ownership of Vietnamese banks.
Late last year, the central bank tasked private real estate firm Sungroup with drawing up a restructuring plan for SCB, according to recent information from the source and three people familiar with the plan. Sungroup did not respond to a request for comment.
Any restructuring plan would be based on the valuation of real estate assets used by Lan and his companies as collateral for loans, but the legal status of these assets is often unclear, as many are still seeking permits and some have violated rules on public land or permits, according to new information.
The Lan family valued the assets at $30 billion, a family representative told Reuters this month, while market valuation firm Hoang Quan, hired by the central bank for a valuation, valued them at about $12 billion , according to a public November police document, which detailed Lan's alleged wrongdoings. This difference in value will be the basis for understanding whether the bank bailout will be a loss or not for the Vietnamese state.
What the West no longer has the courage to do
Vietnam's credit system certainly needs reform to improve the banks' internal audit and controls, but it manages to do what is now impossible in Western countries. hold bank top management criminally responsible for their actions.
How many bank managers have been convicted in the financial crises from 2009 to today in Western countries, and how many have actually spent their sentences in prison, despite the enormous damage caused to the financial system and savers? You will only need one hand to count them. Yet there have been sensational scandals between the USA, Germany, Switzerland and Italy. But now we have impunity.
Thanks to our Telegram channel you can stay updated on the publication of new Economic Scenarios articles.
The article Vietnam must inject 24 billion into its failed bank, 6% of GDP comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/il-vietnam-deve-iniettare-24-miliardi-nella-propria-banca-fallita-il-6-del-pil/ on Thu, 18 Apr 2024 09:00:55 +0000.