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Vietnam banking sector after two years of joining WTO   2008-09-14 - Nhan Dan

The seminar held in Hanoi Friday to assess the impacts of Vietnam's WTO membership to its banking sector after two years.

Vietnamese banks have recorded great achievements after two years since Vietnam has become a member of the World Trade Organisation, this is what has been approved by experts to the seminar to assess the impacts of Vietnam's WTO membership to its banking sector after two years.

However, the international economic integration has also posed various challenges to domestic banks, they said, adding that competition on the market would get fiercer.

Achievements

According to Mr Cao Si Kiem, former governor of the State Bank of Vietnam, during the past two years, being the State agency in charge of currency, credit and banking activities, the State Bank of Vietnam has continued its efforts to perfect its legal regulations in conformity with international commitments and Vietnam's situation. Many legal documents have been issued to facilitate banking activities in Vietnam. The central bank have also taken initiative in implementing measures to develop the monetary, foreign currency market, strengthen its capacity in implementing monetary and foreign exchange policies, carry out administrative reforms, expand international co-operation to exchange and learn more experiences.

During the time, commercial banks have also reported to seize the opportunities created by integration. They have taken the advantage to expand operations in their home country. Therefore, currently, domestic commercial banks have taken the decisive role in providing traditional banking services being capital mobilisation and lending.

Domestic commercial banks have also attached importance to modernisation of its banking technology, considering this as a major tool to narrow the development gap with banks of other countries in the region and the world.

These banks have also diversified its service products to meet the various demands of customers. In addition to traditional banking products, many new ones have been introduced to local customers: card services, phone banking, internet banking, etc.

In addition, the financial capacity of domestic commercial banks has also increased remarkably. Under a Government's regulation, credit institutions and banks must have a minimum legal capital of VND 1 trillion and the figure will be increased to VND 3 trillion by 2010.

The openning of the banking service market under bilateral and multilateral commitments have also created opportunities to attract investment via joint ventures, trading co-operation, and attached with this is the transfer of banking technology and advanced management skills. The participation of foreign investors in management of domestic banks has also been an important element to quickly improve the management capacity of domestic banks.

Challenges

However, integration has also posed different challenges for the domestic banking sector.

As the domestic banking market has been more open, it will be more affected by outside factors. This has caused difficulties for the State Bank of Vietnam, as the State agency in charge of building and managing monetary policies.

WTO integration has also contributed to increasing competition for commercial banks. Many foreign banks have established their branches in Vietnam. Ten foreign banks have invested in commercial banks in Vietnam and become strategic foreign shareholders of these banks. Most recently, HSBC and Standard Chartered Bank have been licensed to set up their own 100% foreign invested subsidiary banks in Vietnam.

Compared with foreign banks, domestic banks have their own advantage of understanding the domestic market and culture and have their traditional customers. However, their financial and management capacity as well as technological application is far behind foreign banks.

For example, Agribank is recognised to be the biggest among State-owned commercial banks but its total capital is around only US$650 million, far lower compared to other commercial banks in the region. Of the total nearly 40 commercial banks in Vietnam by now, only few have their total capital exceeding US$200 million and only some of them are equipped with core banking.

Therefore, experts to the seminar all agreed that competition on the domestic banking market will get tougher and domestic banks will have to face great pressure from foreign banks to survive and develop.

Solutions

Experts to the seminar proposed various measures for the domestic banking sector to continue development.

Efforts to perfect the legal regulations for banking activities should be strengthened to ensure a firm legal foundation for the operations of domestic banks.

The State Bank of Vietnam is requested to increase the effectiveness in regulating its monetary policies within the context of integration.

Commercial banks should pay more attention to modernising its technology, diversifying its products and services, increasing financial and management capacity as well as risk management capacity.

Efforts should also be paid to increasing the quality of banking staff and expanding international co-operation.


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