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The troubles of Vietnamese banks   2009-07-02 - VietNamNet/LD

Experts have affirmed that what needs to be done now to prepare for the post-crisis period is to restructure the banking system.

 

Domestic banks inferior to foreign banks

 

 
Nguyen Duc Huong, General Director of Lien Viet Bank, when talking about the weak points of domestic banks, said that recently, when Vietnam’s national economy was at its lowest and domestic banks had to refuse many clients because of low liquidity, foreign banks grabbed the opportunity, attracting a lot of big clients.

 

The reason for this ‘bitter’ situation, according to Huong, is that domestic banks are lacking US$ capital with low interest rates for big projects. Meanwhile, foreign banks have the advantage of powerful capital sources and they are ready to disburse for big projects.

 

According to Huong, Vietnamese banks are inferior to foreign banks in four things: total asset scale, banking technology, labour force and corporate governance in accordance with international standards.

 

“We are inferior to foreign banks in all these four factors, which are vital for the operations of a bank,” Huong said, adding that though there are many banks in Vietnam, most are just small scale.

 

Foreign banks with limitations

 

Meanwhile, foreign banks complain that their wings will be clipped if new regulations are approved. The draft law on credit institutions’ operations, which is now open for suggestions, says that the credit limit foreign bank branches in Vietnam can provide to one client must not exceed 15 percent of the branch’s equity capital.

 

The current laws stipulate that the credit limit must not exceed 15 percent of the equity capital of foreign branches’ parent banks.

 

Foreign bank branches said that if the draft law is approved, they will have only two choices: reduce their credit limits or raise their capital.

 

Akihiro Saito, General Director of Mizuho Corporate Bank’s branch in Hanoi, said that it is nearly impossible to increase capital at this moment, in the context of the global financial uncertainties.

 

Mr Saito said that if the draft law is approved, this could have negative impacts on Vietnam’s economy in attracting foreign direct investment (FDI) as well as businesses’ operations. Businesses may need capital, but domestic banks will not be able to meet the demand, while foreign banks will not be allowed to provide large enough sums.

 

Restructuring domestic banks

 

According to Mr Saito, domestic banks now need to address new risks that may have impacts on the banking system. First of all, high inflation is lurking. Second, risks from the stock market and real estate bubbles. If bubbles burst, this could have very big consequences.

 

“Domestic banks need to be cautious with the disbursement of loans to fund stock and real estate investments,” he said.

 

Regarding the bad debt ratio of Vietnam’s banking system, Dr Le Xuan Nghia, senior banking expert, said that the reported bad debt ratio is three percent; it was 14 percent during the 1997-1998 Asian financial crisis.

 

Nghia emphasised that the thing that Vietnam needs to do now is to restructure the banking system and tighten licencing.


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