The State Bank of Vietnam has submitted the draft banking development strategy to 2010 to the government, said the central bank governor. One of the key targets set for local commercial banks in the international banking integration process by the SBV is to reach a medium to advanced standard of the Asean region and have the capacity to compete with banks in this region.
The central bank admitted that the effectiveness and efficiency in administering its monetary policy is still low. The administrative measures based on the local monetary market (open market operations or the base interest rate) have not yet brought back much effectiveness to the economy. The SBV’s policies to regulate and control the monetary market especially capital sources, interest rate and forex rate in the economy are still unrealistic and inappropriate.
According to bankers, this is not the first time these existing matters have been proposed. Recently, once there are some big fluctuations to the local market, the SBV shows its weak points in administering and regulating the base interest rate via its own policies.
It is noteworthy that it would appear that since the start of 2004 no banks but only large state banks has applied the SBV’s policy in stabilising the base interest rate.
While the SBV’s capacity to regulate and control the monetary market is still weak, the burden on providing investment capital for the economy is chiefly hitting banks’ shoulders heavily. On the other hand, other capital supplying channels such as the stock market and so forth seem not be able to meet the investment capital demand of the economy.
According to the figure by the SBV, by the end of 2003, total outstanding loans for the economy was estimated at 363.5 trillion dong, equal to 60% of total GDP.
Up to 80% of deposits raised by banks are short-term capital sources (under one year) whereas medium and long term loans disbursed to businesses and individuals accounted for nearly 42% of total capital, which has led to the imbalance in loan terms and contains many potential risks to the payment capacity of banks.
SBV frankly admitted that the financial capacity of commercial banks is still very weak. The paid-in capital of commercial banks is small, which makes the capital adequacy ratio still below the international banking standard of 8%.
A financial specialist said that at present, only joint stock commercial banks can meet this ratio in Vietnam.
In addition, weak management and archaic technologies used at state-run banks do not bring much opportunity for banks to develop their banking service and products with the high quality.
Consequently, the performance effectiveness of local banks still is poor with the rate of the after-tax net profit on total assets that only reaches 0.65%.
Comparing with commercial banks in the region and the world, Vietnamese banks still are weak in many fields.
With the target to improve the capacity to regulate the monetary market by the SBV and develop local commercial banks in the line with banking modernisation and business multifunction, the central bank has had to petition the government to devise many specific measures including SBV’s determination and attempt separate lending to poor families from lending to businesses or commercial fields.
It is admitted that the establishment of the Social Policy Bank (SPB) and the Development Assistance Fund (DAF) to work out policy loans is the SBV’s great attempt to classify these loans.
However, in fact, though commercial banks operate under the principle “they must be responsible for their decision in lending”, they still suffer from authoritative impacts by some state-own agencies in localities.
This completely goes against the rules of the international financial market that local banks are attempting to catch up with and follow.