VIETNAM BANKING MARKET
For over two decades since its initial reforms, Vietnam banking industry has grown aggressively, at least in terms of the number of banks. From a mono-banking system with only a state bank functioning both central and commercial bank’s role to a rather crowded network with 150 banks and over 1,100 non-bank credit, it has become a crowed network of banks and non-banks institutions in just 23 years. The growth focused on two stages and two groups of banks. The ‘90s was the joint stock commercial banks’ era, and the early 2000s marked the entrance of foreign banks.
Currently, there are five state-owned commercial banks (SOCBs), 34 joint-stock commercial banks (JSCBs), four joint-venture banks (JVBs), five 100% foreign owned banks, 100 foreign bank branches and representative office, 18 finance companies, 12 financial lease companies, and almost 1,100 cooperative credit funds.
*Source: banks’ financial statements, Jetview’s calculation
Vietnam banks had impressive growth for both deposits and credits from 2001 to 2010. However, the growth since 2010 has declined substantially. This slow growth is forecasted to continue in 2014. Nonperforming loans (NPLs) are hard to estimate as Vietnamese banks have not followed international standards in loans classification. NPLs were reported at 4.55% in November 2013. However, it is widely accepted that this is far below the actual figure. The Vietnam Asset Management Company (VAMC) was set up in July 2013 with a mission to clean up NPLs from banks’ balance sheets. Banks’ profitability has been declining since 2011. During this period, SOCBs and FBs have been more stable than JSCBs. Due to continuing businesses difficulties and high NPLs profit outlook of banks in 2014 is obscured.
The banking sector’s intermediation is inefficient, and constrained by its weak balance sheet and undercapitalization. JSCBs have grown in importance, but have been unable to break the dominance of the SOCBs. Since 2007, the market share of SOCBs has hovered slightly above 50% as these entities continue to provide directed and often subsidized credit to select industries.
Vietnam is now trying to fix its beleaguered banking system and deal with bad loans that have left its banks weakened and reluctant to lend, which in turn has made it difficult for businesses to invest and decelerated economic growth.
The government would benefit from developing a long-term strategy for the banking sector, similar to the major subsector strategies up to 2020 described in subsequent sections. A more specific credit institutions restructuring plan for the period 2011–2015 was approved in March 2012, with an emphasis on restoring the financial soundness and operational capacity of Vietnamese banks. The road map aims at enhancing the leading role of SOCBs in the banking sector by promoting their continued “equitization,” while retaining a measure of government control, and creating one or two SOCBs that can compete with regional banks by 2015. Joint stock commercial banks, finance companies, and financial leasing will be categorized into “healthy,” “temporarily illiquid,” or “weak” groups, and treated accordingly.
Challenges for banking in Vietnam
In addition to the many opportunities in the Vietnamese banking sector, there are a number of challenges awaiting investors, including:
• Minimizing and managing costs and risks.
• Dealing with outdated or insufficient core banking systems.
• Reporting and managing documents and ensuring the security of information and transactions.
• Establishing customer centric strategies and knowing how to leverage and utilize costumer information to provide better services.
• Obtaining more revenue from treasury and capital markets and complying with ALM regulations.
• Banks asking for source codes or the flexibility to change product workflows.
• Banks combining retail and corporate requirements, e.g. for e-banking.
• Each bank having its own preferred local SI, which makes it difficult to work with all the SIs and accommodate multiple partners in a single deal.
Vietnam has a long way to go to sort out its banking sector and start along the path to a brighter socio-economic future. However, it seems that the government is determined to work towards reforming and modernizing the banking system and there are clearly many opportunities for investors to get in on the action. The Vietnamese people, along with the rest of the world, are eagerly waiting to find out what the future will bring.
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