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Banks need better risk management, say experts
Banks must improve their risk management, especially at a time when many of them are planning to convert into investment banks, experts have said.
While the last two major US investment banks, Goldman Sachs and Morgan Stanley, converted back into traditional commercial banks last month in the wake of the financial crisis, many banks and securities companies in Vietnam are planning their first foray into investment banking.
Earlier this year the board of Saigon Securities Inc. said the company has plans to become an investment bank.
Lien Viet Commercial Joint Stock Bank could also become an investment bank, its general director Nguyen Duc Huong said.
Asia Commercial Bank (ACB) deputy chairman Nguyen Duc Kien said ACB would focus on providing retail services in future while ACB Securities, its stock broking arm, would be remodeled into an investment bank.
It would have three main units – a fund management company, an investment company and an insurance company.
Most of the 42 commercial banks in Vietnam are currently traditional banking institutions, with the exception of the Vietnam Development Bank and Banks for Social Policies.
The general director of the central bank’s Banking Development Strategy Department, Le Xuan Nghia, said the country’s banks are commercial banks that also offer investment services.
But commercial banks should be careful about spreading themselves too thin since they are the backbone of the economy, and their main function should be to raise money from depositors, Nghia said.
If they don’t have solid risk management systems, it could negatively impact the economy, he said.
In Vietnam, the safety of savings deposits in commercial banks is guaranteed by deposit insurance of up to a maximum of VND50 million (US$3,000) per depositor. Any amount above that may be lost if a bank goes bankrupt.
Therefore, it can be risky for people putting their money in banks that do not have adequate risk management.
In a recent case, two bankers were caught embezzling money to invest in gold. In another case, a bank lent up to 250 percent of its deposit amount.
Both are examples of poor management practices and should serve as a wake-up call to depositors who trust banks with their savings.
Economist Le Dat Chi said risk management differs among banks because certain investment activities can be too risky for some banks but others can handle them.
“The important thing is that banks have to balance their accounts,” he said. “When the property market is frozen, for example, investment in real estate will adversely affect liquidity.”
Chi suggested a system should be created to monitor the financial management of banks and large state-owned corporations.
Banks and corporations should also improve their transparency in disclosing financial reports and should take full responsibility for what they report, he said.
Nghia said financial oversight in Vietnam is too fragmented, with each sector regulated by a different government agency.
For instance, the stock market is overseen by the State Securities Commission, the banking sector by the State Bank of Vietnam and the insurance sector by the Ministry of Finance, he said, adding that in other countries an overarching organization monitors all these sectors.
“With four or five organizations responsible for oversight, there will be related risks if they don’t exchange information on time,” Nghia warned.
Thanhnien
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