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Banking sector under pressure, conference hears
Vietnam’s commercial banks are facing increasing pressure as the economy integrates into the world market and international banks are allowed access to the market, delegates told a conference in Hanoi Thursday.
The State Bank of Vietnam has recently issued the first licenses to foreign banks, HSBC Holdings and Standard Chartered, to establish wholly-owned units in Vietnam.
“The banking system is in an early development stage. The financial capacity of many commercial banks is still weak, overdue debt is high and many risks are latent,” said Pham Huy Hung, chairman of the management board of the Vietnam Bank for Industry and Trade (VietinBank).
Four leading state-owned commercial banks and the newly equitized Bank for Foreign Trade of Vietnam, which together have a 70 percent share of Vietnam’s mobilized capital and credit market, have combined equity capital of some US$2.5 billion, equivalent to a “small” Asian bank, he said.
Meanwhile, 37 joint stock commercial banks are very small, some with equity capital of only about $200 million.
Banks with low capital are vulnerable to sudden mass deposit withdrawals and takeovers and were often not skilled at managing liquidity risks, said Dr Nguyen Thi Mui from the Financial Institute.
The number of local joint stock commercial banks decreased to 36 in May this year from 51 in 1997 as banks went bankrupt and had their licenses revoked, according to a report at the conference.
Banking services are also still weak and undiversified. Only traditional services, such as loans, transfers and bill payment services, are offered. New services, such as asset management, investment advice, business broking and internet and phone banking have not yet been fully developed in Vietnam.
Therefore, credit services, including loans, make up the bulk of banks’ income. In 2007, nearly 30 banks posted credit growth above 100 percent. Many banks have to borrow from other banks at high interest rates to ensure sufficient capital for business, Mui said.
Banks with rapid credit growth and heavy reliance on inter-bank loans could run into trouble if regulations change, she said.
In addition, local banks’ risk management work has revealed shortcomings, with many credit institutions lacking appropriate credit ranking systems.
Due to limited capital, technology in Vietnamese banks is still poor compared to other Asian countries, she said.
Meanwhile, the pace of banking sector reform was slow and the reliability of bank reports low, Mui said, adding that accounting systems did not comply with international standards.
Some delegates said Vietnam’s legal system and bank policies also did not meet international standards.
To improve the competitiveness of local commercial banks, the country should reduce the number of “less effective” commercial banks, delegates said. The government should also more closely manage banks’ business and accelerate equitization, the process of transforming state-owned companies to majority government-owned listed companies.
The government should encourage small banks to merge, said Le Dac Son, general director of the VP Bank.
Thanhnien
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