Vietnam's Banking Sector Remains Weak on Global Scale: Standard & Poor

Vietnam's Banking Sector Remains Weak on Global Scale: Standard & Poor 

Vietnamese banks operate in a competitive environment full of risks, including poor financial transparency, assets and risk management. Furthermore, Vietnamese banks are weak in assessing projects and providing loans. These weaknesses can be seen in both State-owned commercial and joint stock commercial banks.

Many issues relating to the improvement of credit, risk control, and safe operation for Vietnamese banks have been considering to be put into law.

According to the Standard & Poor's credit ratings company, one of the three most prestigious credit ratings organisations in the world, Vietnam's banking sector remains weak on the global scale.

Standard & Poor's statistics show around 5,500 State-owned enterprises in Vietnam are clients of four State-owned commercial banks, the Vietnam Bank for Agriculture and Rural Development, the Bank for Foreign Trade of Vietnam, the Bank of Investment and Development of Vietnam, and the Vietnam Industrial and Commercial Bank. Activities of State-owned enterprises are often ineffective. As a result, the four State-owned commercial banks face great risks as State-owned enterprises are provided soft loans without any guarantee.

Joint stock commercial banks, which were set up in the 1990s, are not impacted by administrative burdens like the State-owned commercial banks. Thus, they are more flexible and easier to adapt themselves to market conditions. However, they have little charter capital amounts, about US$5 million per bank, so they cannot provide big loans. Like the State-owned commercial banks, they have a high rate of bad debts and outstanding letters of credit, even though it is difficult to evaluate the quality of their loans because of poor reports and a lack of transparency.

Credit control is necessary for activities of the banking sector as the regulations on credit control activities in Vietnam remain weak and unsuitable with international practice.

According to Standard & Poor, Vietnam will face many challenges if it wants to develop a prestigious banking service. Even though reforms in the banking sector are implemented gradually, Vietnam should make concrete preparations for such reforms to be successful in integrating into the world financial market.

• Mai Anh