Equitisation - A Necessary Step in Vietnammâ€s Banking Reform

With their restructuring effort to improve capability over the past number of years, Vietnamese banks have become profitable and their shares’ prices have increased sharply. However, in comparison with other banks in the region, Vietnamese State-owned banks have only an average size in terms of capital. This requires them to perform further reform steps to improve their position during international integration.

 

Banking reform was one of the themes that attracted a lot of attention from participants of the Vietnam investment forum ‘Post WTO accession investment opportunities.’ At present, Vietnam has around 40 banks, let alone 30 branches of foreign-owned banks and joint venture banks.   Le Dao Nguyen, deputy general director of the Bank for Investment and Development of Vietnam (BIDV), one of the shortcomings, producing negative impacts on competitiveness of local banks was its poor financial capability. Their equity has not yet met the safety mark, according to international practice. At the same time, their capability and governance remain weak while their products have not yet diversified. In addition, they lack concrete strategies. According Nguyen Duc Vinh, general director of the Technological and Commercial Bank (Techcombank), development orientations of banks have been clear enough to create their own identity. Most banks tend to be retailers, providing services to local clients. In fact, although some banks have opened many branches and offices, Vietnamese clients do not yet enjoy convenient services and products like in many other countries.

On the other hand, Huynh Nam Dung, chief executive of the Mekong Housing Bank (MHB), said that local banks only concentrated on credit services, which usually went along with high risks, but their solutions for improving the management of credit risks remained constrained.

 

In addition, human resources shortage is another difficulty for many local banks. Facts show that in the last two years, human resources didn’t meet the high growth of local banks. As a result, unfair competition occurred among local banks to attract qualified staff members.

 

Dung said that the best solution for State-owned commercial banks to increase their capital was equitisation and the mobilisation of capital from the market. Equitisation and the mobilisation of capital from shareholders, who are foreign banks, will help local banks improve their management and governance, in particular their risk management capability. So far, among five State-owned commercial banks, only MHB and the Bank for Foreign Trade of Vietnam (Vietcombank) have been allowed to pilot equitisation.

 

Alongside equitisation, Vinh said, State-owned banks should expand their activities with diversified products and services. Concretely they should set up insurance companies, investment funds, issue bonds and shares alongside traditional capital mobilisation method – savings. Also, they should diversify their products for enterprises and individuals with loans and capital contribution to enterprises via investment funds and individual financial services including debit and credit cards.