The experience has showed that when any economic downturn or crisis breaks out, the economy in general and the banking system in particular expose their advantages and disadvantages and this gives a chance for administrators to monitor banking and economic operations comprehensively. Therefore, it is said that the financial crisis will promote reforms and provide a good opportunity for banks to restructure.
In Vietnam, the government, ministries, authorities are enhancing discussions to work out a suitable plan for efficient economic restructuring. Regarding the real situation of Vietnamese banking system and changes of domestic and international environment, banking restructure is considered very necessary.
One of noticeable disadvantages of the commercial banks in Vietnam is an unbalanced growth in many areas; particularly administration mechanism has not caught up with the rapid growth of operation scope and capital.
Vietnam is still regarded as an economy growing based on capital with the high rise of ICOR in recent years. Average credit growth of Vietnam reaches early 30 percent a year while the researches showed that average credit growth of higher three times than annual GDP development is suitable. At the end of Q3, the credit operation surged 28 percent that could surpass 30 percent in the full year whereas the economic growth is predicted at only 5.2 percent.
In addition, according to statistics, in 1990s, the credit supply to the economy accounted for 18 percent of GDP. However, to date (2009), the ratio reached nearly 100 percent. The initial level of the M2/GDP ratio is estimated at 110 percent against 1990′s 19 percent. Such growth of scope of each bank and entire market is very rapid but factually commercial banks now are still operating under old model that could not catch up with the market mechanism. At the same time, Law on SBV and Law on Credit Institutions show backward points needed to be amended.
In another aspect, 2008 was the challenging year for banks in terms of liquidity management. Some banks fell in the serious liquidity shortage and a “super interest rate trend” happened as a result. Commercial banks ever pushed up the interbank market to 45 percent a year. Such limited liquidity management caused the unbalance of deposit terms and made the banking system vulnerable before economic and financial shocks. In capital structure of banks, up to 80 percent is below one year deposits and only 20 percent is over one year capital, in which over 2-year deposits account for less than 10 percent. Meanwhile, 60 percent of outstanding loans of Vietnamese commercial banks are long term (longer one year loans).
At commercial join stock banks, business administration model was out-of-date, especially newly upgraded rural joint stock banks.
As for state commercial banks being equitised and listed on the stock market, the old administration model is still maintained because these banks only sold out a small stake. (Vietcombank equitised only 9.28 percent of its chartered capital and Vietinbank 4 percent). The fact showed that Vietnam is required to carry out a banking restructure in both macro and micro aspects through amending Law on SBV and Law on Credit Institutions aiming to reform the banking administration model in line with international norms.
Currently, the ownership capital of commercial banks has been improved respectively. Most commercial banks’ Capital Adequacy Ratio (CAR) surpassed 8 percent. Yet, joint stock banks need to upgrade administration to operate as a joint stock company and a public company.