Caution advised on bank reform

Restructuring the banking sector is drawing special attention from the public as the sector exerts great impact on the economy’s stability and lives of people who consider banks the safest place for their assets.

Up to June, 2011, Vietnam has five state commercial banks, one bank for social policies, one development bank, 37 private joint stock commercial bank, five joint venture banks, five wholly foreign-invested banks, 48 branches of foreign banks, 48 representative offices of foreign banks, 18 financial companies and 12 financial leasing companies. The banking sector’s total credit balance for the economy recorded an average growth of over 29 percent annually and was equivalent to 116 percent of GDP by the end of 2010.
Restructuring the banking sector is drawing special attention from thepublic as the sector exerts great impact on the economy’s stability andlives of people who consider banks the safest place for their assets.

Up to June, 2011, Vietnam has five statecommercial banks, one bank for social policies, one development bank, 37private joint stock commercial bank, five joint venture banks, fivewholly foreign-invested banks, 48 branches of foreign banks, 48representative offices of foreign banks, 18 financial companies and 12financial leasing companies. The banking sector’s total credit balancefor the economy recorded an average growth of over 29 percent annuallyand was equivalent to 116 percent of GDP by the end of 2010.

Vu Viet Ngoan, Chairman of the National Financial SupervisoryCommittee, said despite the large number, the banks’ quality is stilllimited with many banks weak in financial and administrative capacity,especially administration of risks.

Theaforementioned reality and impacts of the world economy’s instabilityhave pushed many banks into difficulties and bad debts up. According tothe World Bank and the State Bank of Vietnam (SBV), the percentage ofbad debts in the entire banking system stood at 3.1 percent in August,2011 compared to 2.16 percent in 2010, and the figure is expected toclimb to 5 percent by the end of this year.

Forthis reason, many National Assembly deputies at a debate onsocio-economic development plan for 2011-2015 on Oct. 27-28 alsounderlined the urgent need to reform the banking sector. This is alsoone of three breakthrough steps defined by the Government to restructurethe economy.

Nguyen Dong Tien, SBV Deputy Governor,said the SBV is building a project on bank reform in the spirit ofensuring banks’ normal operations and legal rights of depositors.

The SBV encourages merger and acquisition (M&A) of creditinstitutions to facilitate the restructuring process, Tien said.

The recent time witnessed many M&A transactions among banks suchas the merger between Lien Viet Bank and Vietnam Postal Saving ServiceCompany into Lien Viet Post Commercial Joint Stock Bank, Vietinbank’sselling of a 10 percent stake to the International Finance Corporationand Vietcombank’s selling of a 15 percent stake to Mizuho Bank ofJapan .

Apart from the bank reform project, the SBVis also compiling a decree that requires commercial banks to meetminimum charter capital of 5 trillion VND by 2012 and 10 trillion VND by2015. This is also seen as a strong method to force banks torestructure if they want to exist and operate effectively./.

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