Vietnam’s entry into the World Trade Organization (WTO) is confronting the banking sector with numerous challenges in a period when the country has low market development, weak capital capacity, and backward technology and organization, central bank governor Le Duc Thuy said.
Currently, total chartered capital of state run commercial banks reaches only just over VND21 trillion and the credit balance is approximately 55 per cent of the Gross Domestic Product (GDP) compared to the figure of more than 80 per cent in regional countries. Equity of state owned banks averages only some $200-250 million, equal to a medium bank in the region. Meanwhile, the average chartered capital of commercial joint stock banks is some VND200-300 billion.
“Another weak point of Vietnam’s banking sector is performance quality. While the strong point of foreign banks are services, domestic banks focus on credit activities. Products and services of Vietnamese banks remain poor. Also, banks still lack management statutes following international standards for risks, loans, clients, products, internal auditing,” said Thuy.
“When Vietnam officially enters the WTO, Vietnam will witness basic changes, namely foreign financial institutions will gradually hold stakes of domestic banks. Weak and small banks will have to merge together. Particularly, the appearance of 100 per cent foreign invested banks will make big changes for the structure of the monetary market share,” added Thuy.
In the short term, Thuy said, Vietnam will gradually remove restrictions on stake ownerships in local banks of foreign financial institutions in line with international commitments. “After that, Vietnam will have to loosen regulations on capital contribution ratios of foreign banks in Vietnamese banks,” emphasized the governor.
Regarding measures to cope with challenges amidst approaching international integration, Thuy said this is a matter of improving financial capacity and credit quality conforming to international standards. “They are direct measures to supplement capital to boost equity of state run commercial banks following international standards, accordingly raising capital adequacy ratio (CAR) from some 3-4 per cent to the minim required level of 8 per cent in the forthcoming time and narrowing gaps of financial capacity, technologies between Vietnamese banks and regional banks,” said Thuy.
“Moreover it is necessary to speed up equitisation of some state banks, facilitating banks to issue long-term bonds in order to boost the capital market,” added Thuy.
“Developing some big-scaled banks will follow multi-functional economic group models. Additionally, commercial joint stock banks should take initiatives to chose time and forms of boosting capital, improve service quality and safety in order to speed up listing shares on the stock market,” Thuy pointed out.
Vietnam Economic Times
Vietnamese
