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Foreign competition drives bank overhaul
Restructuring of the banking sector will be needed for local banks to compete with foreign ones, according to industry insiders.
Experts said that the country’s domestic banks, numbering more than 40, lack large assets, modern banking technology, qualified workforce, and an international-standard management.
Nguyen The Huong, general director of the Lien Viet Commercial Joint-Stock Bank, said the number of Vietnamese banks was high but their weaknesses inhibited them from becoming more successful.
Because of the global recession, many domestic banks had to turn down customers because their liquidity was not strong enough to meet demand, he said.
Many domestic banks, which are short of US dollars and have low interest rates, could not fund major projects.
"Foreign banks have the capital for projects while local banks have resigned themselves to their fate", Huong said.
"Foreign banks also have the right to do business in other countries, an advantage they have over local ones."
Dr. Le Xuan Nghia, director of the State Bank of Viet Nam’s Department of Banking Strategy Development, said competitiveness could be enhanced by restructuring the banking sector and strictly controlling the granting of bank licences, among other tasks.
Banking leaders should ask local banks to use modern technology which would force them to change their style of management, and strengthen workforce training and credit risk administration.
Some experts suggested restructuring the banking sector by reducing the number of ineffective commercial banks, increasing competition, and restructuring the operation of remaining banks.
They said it was important to improve the legal framework and judicial capacity, which would support loan collection and collateral enforcement of domestic banks.
Avoiding risks
Domestic banks must pay attention to new risks that would likely cause certain effects on their operation as well as business effectiveness, said Akihiro Saito, general director of the Japan-based Mizuho Corporate Bank’s branch in Ha Noi.
Inflation and fluctuations in the stock market and real estate industry would create high risks that could cause great losses for local banks, he said.
To prevent this possibility, local banks should be cautious when they decide to provide loans for investment activities related to the stock and real estate markets, he said.
Non-performing loans in the banking sector account for three per cent of total outstanding loans, up from 2.5 per cent over the same period last year, according to Nghia.
The major risk to local banks’ medium- and long-term loans was inflation, but the central bank had prepared plans to cope with the possibility, he said.
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