Corporate Governance in Vietnamese Banking System: Inadequate and Weak

Corporate governance is defined as the mode enterprises are governed and the accountability of the stewardship before owners and shareholders. In the Business Report 2007 of the WB and IFC, Vietnam is listed one of the five worst in protecting rights and interest of investors. The liability of corporate managers is also listed in the lowest group while the corporate transparency of Vietnamese enterprises is not high. This is the biggest weak point of Vietnamese enterprises, especially commercial banks.

 

According to Mr. Le Xuan Nghia, director of the Banking Development Strategy Department under the State Bank of Vietnam, the pressure from the guarantee of long-term interests for shareholders, investors and the public is increasingly higher, especially when Vietnam implements the bilateral and multilateral commitments in opening up financial services. On the other hand, the moral risk is very high, both in the banking and customer area (depositors and borrowers). Until now, the State still insures all deposits and it intervenes in credit, quittance, and nomination and dismissal of managerial officials. This is contrary to the international practices and principles.

 

Mr. Vu Viet Ngoan, General Director of Vietcombank, said, Vietnam presently lacks a common framework for corporate governance models while the legal system has not clearly specified corporate governance patterns. The mechanism to delimit the accountability is unclear and impractical, notably the delimitation of accountability of Board of Directors and Control Board. At present, the Board of Directors still directly governs several activities of the banks like administering interest rates, foreign exchange rates and fees. Specially, the contradiction still exists in delimitation of responsibility and authority in a bank (The Board of Directors directly manages but the General Director is legal liability.

 

Besides, banks do not have a common and clear customer policy system, an effective budget management system and a product, customer and location efficiency analysing system. This restrains the ability of defining comparative advantages and deciding investments of Vietnamese commercial banks.

 

Separating liability of Board of Directors and Control Board

According to Mr. Oliver Massmann, Director of Baker& McKenzie, Vietnam is in the process of transition. The new Enterprise Law and Securities Law have made positive progresses and vision adjustments of entrepreneurs, shareholders and enterprises. Notably, the Securities Law, which is set to take effect from January 1, 2007, will make an important step to build an effective corporate governance system. However, according to Mr. Oliver, the State Securities Commission should be independent of the Ministry of Finance and it is necessary to have a popular education and training programme to ensue the full obedience of the law in the community.

 

Mr. Kieu Huu Dung, Director of the Banks Department under the State Bank, said, the expected reform in the Vietnamese bank governance in the coming time comprises of the structure reform of the of the Board of Directors, the delimitation of the liability of Board of Directors and Control Board in order to ensure the decision-making independence and intensify crosschecks.

 

Besides, the publicity of information is crucial. This will help shareholders, other beneficiaries and the market understand financial and management situation of banks, increase market discipline and improve banking governance.