Agribank - Good Banking Governance Leads to Integration Success

With a dominant role via 70 per cent of rural financial market in Vietnam, the Vietnam Bank for Agriculture and Rural Development (Agribank) has made significant contributions to the economic development in agriculture and rural areas. So far, Agribank has become a leading commercial bank in Vietnam in terms of charter capital, total assets, and network of branches, staff members and services.

Set up in 1988 after being separated from the State Bank of Vietnam with a function of providing traditional credit services for the economy and the collective sector, so far Agribank has become a multi-functional bank. The bank has become the first bank in Vietnam to be audited by international auditing firms, so the bank has a healthy and stable financial status. Do Tat Ngoc, chairman of Agribank’s board of directors, said that since 1993 the bank has become profitable with a high year-on-year increase. Agribank was the bank which proposed and provided direct loans for households from 1990. The number of households getting loans from the bank increased from several tens of thousands of households with a total loan valued at VND 300 billion (about US$19.011 million) in 1991 to about nine million households (two million of which have been provided loans via the Social Policy Bank) with total loans valued at VND 70,000 billion (about US$4.435 billion).

Agribank has experienced a great change. From a bank providing domestic loans, Agribank now has become a multi-functional bank accounting for 10 per cent of revenues of international payment for the whole banking system. The bank provides almost all international banking services, including mobilisation, lending, guarantees, foreign currency trading, international payment and border payment. It has also developed agent relationships with more than 800 banks around the world.

Furthermore, Agribank has implemented some of the biggest foreign investment projects in Vietnam with a total capital of US$2.7 billion. Twenty of these projects have been lent USS600 million with mandates from the World Bank, ADB and AFD.

Ngoc said that the achievements were recorded thanks to the bank's focus on banking governance. Agribank has removed the subsidy and central planning mechanism, creating a unique management to encourage the creativity of its branches. In the past, branches had to send all capital they mobilised to the central bank and the bank decided to allocate capital for each branch. Now, branches have been allowed to use capital they have mobilised to increase their loans. Therefore, their incomes depend on the results of their business activities. The central bank regulates among branches in different business environments to reduce differences.

Agribank has applied one system of interest rates to the whole network. Loans with lower interest rates must be given permission by the bank’s general director. The bank has primarily concentrated on management of risks, in particular credit and international payment risks. Therefore, the bank has developed a risk prevention mechanism.

Under the Vietnam-US Bilateral Trade Agreement (BTA), the ASEAN Free Trade Area (AFTA) scheme and commitments for the accession to the World Trade Organisation (WTO) in 2005, foreign banks will be allowed to provide all services in Vietnam from 2008 to 2010. In this context, Agribank has set a target of rapid development as a leading commercial bank in the region and the world. To that end, the bank will have to modernise its management. Ngoc said that Agribank had developed long-term management plans with a clear identification of business targets and strategies for each quarter and year. Accordingly, Agribank will make a shift in lending to agriculture and promote the development of modern services, including international payment, card issuance, guarantees and individual banking services. At the same time, it will expand its network in urban areas and places with favourable conditions to mobilise capital for loans to rural areas.

The bank will apply the suggestions of international auditing organisations to meet all accounting and auditing standards in the coming years, adjusting its slum-sum mechanism and perfecting its risk management in accordance with international practice and standards. On the other hand, the bank will modernise its management information system, building data pools and developing management software which will allow online access to data.

• Quynh Chi