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.

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

The aforementioned reality and impacts of the world economy’s instability have pushed many banks into difficulties and bad debts up. According to the World Bank and the State Bank of Vietnam (SBV), the percentage of bad 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 to climb to 5 percent by the end of this year.

For this reason, many National Assembly deputies at a debate on socio-economic development plan for 2011-2015 on Oct. 27-28 also underlined the urgent need to reform the banking sector. This is also one of three breakthrough steps defined by the Government to restructure the economy.

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

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

The recent time witnessed many M&A transactions among banks such as the merger between Lien Viet Bank and Vietnam Postal Saving Service Company into Lien Viet Post Commercial Joint Stock Bank, Vietinbank’s selling of a 10 percent stake to the International Finance Corporation and Vietcombank’s selling of a 15 percent stake to Mizuho Bank of Japan .

Apart from the bank reform project, the SBV is also compiling a decree that requires commercial banks to meet minimum charter capital of 5 trillion VND by 2012 and 10 trillion VND by 2015. This is also seen as a strong method to force banks to restructure if they want to exist and operate effectively./.