Money & Banking Paper - The Banking System in Vietnam

7/28/2019 Money & Banking Paper - The Banking System in Vietnam

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Cracow University of Economics

Money & Banking THE BANKING SYSTEM IN VIETNAM

1HUONG, DO THI LAN

May 06, 2013

THE BANKING SYSTEM IN VIETNAM

As one of fastest grown economies in Asia with annual economic growth rate around 5

to 7% (5.98% in 2011), almost 70% of Vietnamese inhabitants are in the working age

from 15 to 64 years old,Vietnams economy has become an attractive market for

investors worldwide as a tiger in South East Asia. Investing in Vietnam generally and in

its financial market as well provides investors diverse benefited opportunities. Thats the

reason why I chose the subject to give the readers some comprehensive information

about this new opened potential financial and banking system.

1. History of the Banking System in VietnamThe development of the Banking System in Vietnam has closely linked with its national

history. Before the August Revolution 1945 Vietnam was under the French colonialists

rules. The banking and credit systems was founded and protected by the French colonial

Government through the Indochina Bank, which acted as both the central bank of the

whole Indochinese region (Vietnam, Laos and Cambodia) and a commercial bank. After

the establishment of the Democratic Republic of Vietnam in September 1945 the new

elected Government attempted building a monetary and banking system independently

from French. In the second Congress of the Vietnam Workers Party (February 1951)

President Ho Chi Minh signed decree on establishment of the Vietnam National Bank

(Ngn Hng Quc Gia Vit Nam). On 21st January 1960 the Vietnam National Bank was

renamed as the State Bank of Vietnam (Ngn Hng Nh Nc Vit Nam).

After the fall of Saigon and the capitulation of South Vietnams Governors the two partsVietnamswere officially united. With the founding of Socialist Republic of Vietnam,

administrations and institutions of North and South Vietnam became unified. The

National Bank of Vietnam (the central bank of Republic of Vietnam South Vietnam)

was merged into the State Bank of Vietnam.


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In the iMi1 liberalization era, the banking system in Vietnam was reformed. New

banks were created, starting with the Industrial and Commercial Bank of Vietnam and

the Vietnam Bank for Agriculture. Nowadays the State Bank acts as the Central Bank of

Socialist Republic Vietnams banking systems, which consists of 5 state-owned credit

institutions, 35 joint-stock commercial banks, 50 branches of foreign banks, 4 Joint-

venture banks, 5 wholly foreign-owned banks, 18 finance companies, 12 leasing

companies and 50 representative offices of foreign Banks.

2. The main regulatory bodies and their powers in Vietnam banking systemThe State Bank of Vietnam (SBV)As in most other countries, the State Bank of Vietnam is on the top of Banking System in

Vietnam, acts as central bank of the country, being the money issuer, the bank for credit

institutions and providing monetary services for the Government.

The SBV is a ministerial agency directly under the administration of the Government.

The bank governor is a member of the cabinet, equivalent to a minister in the cabinet,

who is nominated by the prime minister subject to the approval of the National

Assembly Parliament. In addition to being the central bank, the SBV has the power to

issue legal instruments on currency and banking operations, issue and revoke licenses of

credit institutions, authorize the dissolution, division or merger of credit institutions,

inspect and control operations of credit institutions, and deal with offences.

The Ministry of Finance (MOF)

The MOF is a Government ministry, responsible for State administration in finances

including managing the national budget, tax revenue, state assets, national financial

reserves and the finances of state-owned corporations. The ministry also directly owns

and controls some state companies such as Bao Viet insurance with 71%. Managing the

1iMi: Renovation the economic reformation Vietnams 1988


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work of national accounting, state borrowing, the activities of stock markets and the

Department of Customs is furthermore MOFs responsibility.

The State Securities Commission (SSC)

SSC was created early 1990s by Vietnams Party and Government as a new channel of

fund raising for development investment. At first it was the project of research and

establishment of securities market, which purposely carried out under the management

of the SBV. It was then set up in 1996 as a Governmental agency, responsible for State

management of securities markets, including licensing of securities issues, trading and

services, inspection of companies involved in securities activities and dealing with

securities offences. The SSCs leadership includes Chairman and Vice-Chairmen are

appointed by the Prime Minister.

3. Current Structure of Banking System in Vietnam and overview of major banksThe credit institutions system in Vietnam currently consists of:

No Types 2010 2011

1 State-owned commercial banks (SOCBs) 5 5

2 Policy Bank 1 1

3 Development Bank 1 1

4 Joint-stock commercial banks (JSCBs) 37 35

5 Joint venture banks (JVBs) 5 4

6 Branches of foreign banks 48 50

7 Banks with 100% foreign capital (FBs) 5 5

8 Financial companies 17 189 Financial leasing companies 13 12

10 Central people's credit fund 1 1

11 Local people's credit funds 1057 1095

12 Small-sized financial institution 1 1

13 Representative offices of foreign banks 48 50


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Money & Banking

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Figure

Reflecting Vietnams

are still dominating

shrunk during the per

and deposits3 2007 t

owned by the Govern

shareholder. Most of

VND 64,037 billionof

traditional customers

to non-performing lo

2010s non-performin

Figur

2SBVs annual report 2011

3Vietnam Primer III at a Crossro

4VCBSs information sources

5See table 1

7.9% 8.1% 8.8%

17.8% 23.0%33.1% 3

74.5% 68.9%

58.1% 5

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%

2005 2006 2007

Deposits market

JVBs & FBs JSCB

THE BANKI

: Credit institutions system in Vietnam2

socialist history, 5 large State owned com

he banking sector, though their market

iod 2005 2010 from around 70% - 75% of

o around 50% in 2009 and 20104. SOCBs

ment or partially equitized but the Govern

these banks have advantages of large cap

chartered capital owned by four largest

are state owned enterprises (SOEs), which

ns than other enterprises. According to S

g loans were from SOEs.

2: Market sharing under Credit institution

d Deutsche Bank AG/HongKong April 2008

9.5% 9.3%

16.4% 23.7%3

74.2%67.0%

5

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%

2005 2006

Credits

JVBs & FBs

.1% 7.5% 8.9%

5.9% 42.8%43.4%

6.1% 49.7%47.7%

008 2009 2010

share

s SOCBs

NG SYSTEM IN VIETNAM

4

ercial banks (SOCBs)

hare has significantly

market share in loans

are banks that 100%

ent is still the largest

ital size5, reflecting in

SOCBs in 2010. Their

have higher exposure

BVs statistics, 60% of

roups

.0% 10.5% 9.1% 13.6%

3.9% 33.8% 36.7%37.1%

7.1% 55.8% 54.1%49.3%

007 2008 2009 2010

arket share

JSCBs SOCBs


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Join Stock Commercial banks (JSCBs) are growing quickly, operating more actively and

have gradually grabbed market share from SOCBs. 2002 there was no JSCB listed on

Vietnams stock exchange. Currently 5 of them are playing along with the largest SOCBs

on the Vietnam Hanoi Exchange Stock Equity (HNX) as well as on the Ho Chi Minh City

Stock Exchange (HOSE). JSCBs have diversified shareholders composition and focus on

retail banking and lending to small and medium enterprises. Market shares of these

banks increased dramatically in the last few years, reaching peak at 43.4% for deposits

nearly as much as its of SOCBs and 37.1% for credit in 2010.

However, the capital size of this banks group is still much smaller than of SOCBs6.

Eximbank (EIB) leads the JSCBs with chartered capital of VND 12,355 billion even not

just a half of one largest SOCBs chartered capital, followed by Sacombank with VND

10,740 billion, SCB with VND 10,508 billion and MB with VND 10,000 billion. ACB,

Maritime Bank and Techcombank are belonging to the group biggest JSC Banks7, which

comprises the chartered capital above VND 8,000 billion. Most of the other JSCBs have

chartered capital of around VND 3,000 5,000 billion. Accordingly many banks have

faced liquidity problems and this ignited the interest rate racing among banks.

Joint Venture Banks (JVBs) and (wholly foreign owned banks) FBs have some

advantages in compare with domestic ones especially in term of retail banking, quality

of services and sophisticated products. Large FBs like HSBC, Citibank, ANZ, Standard

Chartered and Deutsche Bank have found their residents and attempted to expand their

operating network in Vietnam. Many other foreign bank branches of Huanan,

Chinatrust8 and Mizuho9 in Vietnam also increased its capital provide by their mother

banks. In addition, some FBs are still holding stakes in domestic JSCBs.

6See Table 2

7See Table 3

8Chinese banks

9Japan most powerful commercial bank


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F

i

F

F

F

i

F

i

g

u

r

Figure 3: FBs shares in domestic banks10

Despite of several advantageous factors, FBs market shares as well as their operating

networks are relatively small compared to that of the domestic banks. Nevertheless

opportunities for foreign participation in Vietnam banking system are still provided by

Vietnamese Government in an attempt to obtain additional capital for its debt-ridden

banking system. Via the SBV, the Government announced the issuing of a draft decree,

which would allow foreigners on a case-by-case basis to obtain stakes of over 30% in

Vietnamese banks instead of 20% currently.

4. Banking sector efficiency and stabilityVietnam banking sector is one of the most profitable banking systems in Asian. With

ROE around 18.25% Vietnam is ranked just right behind China and Hong Kong11in term

of this profitability index. When revenues have been flat or shrinking in Western

markets, the banking institutions Vietnams recorded a revenues growth rate of 30% -

the highest level among Asian countries12. In Asia Pacific area HSBC Vietnam, ACB &

10Vietcombanks Statistics

11The future of Asian Banking Volume 2- Oliver Wyman Financial Service (2012)

12The future of Asian Banking Volume 2- Oliver Wyman Financial Service (2012)

Domestic banks Foreign banks Stake

ACB Standard Chartered 11.47%

Sacombank ANZ 9.78%

Eximbank Sumitomo Mitsui 15%

Techcombank HSBC 20%

SEABank SocitGnrale 20%

Southern Bank UOB 19.99%

Orient Commercial Bank BNP Paribas 15%

VIB Common Wealth 20%

Habubank Deutsche Bank 10%


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Techcombank are placed among 50 best performance banks related to returns on assets

indicator13. HSBC Vietnam occupied the 9. rang with ROA of almost 30%, ACB and

Techcombank were dedicated to 14 and 18. Places for their ROA indicators of 27.5% and

26% respectively. In the same period of time according to IMFs data, the total assets of

banking sector have doubled from VND 1,097 trillion (USD 52.4 billion) in 2007 to VND

2,690 trillion (USD 128.7 billion) in 2010. Vietnam was ranked second after China in the

top ten countries having the highest asset growth of the banking sector by The Banker.

Figure 4: Growth of credit, deposits and GDP during 2000 - 201014

Nevertheless the high asset growth is not increasing proportionally with the level of

credit growth and GDP growth. Average credit growth during 2000 2010 was 32%,

while the average growth of deposits and GDP were 29% and 7.15% respectively. That

might have negative impacts on the health of the economy. Additionally credit growing

faster than deposits in most of the years also caused the liquidity problem for the

banking sector. Especially in segment of small banks, liquidity problems are frequently

reported. High interbank interest rate in addition to collateral requirements of strong

capital based banks make small banks harder in handling with liquidity risks.

13Asia Pacific Banks Performance Rank Highes Return on Assets The Asian Banker

14Vietcombanks Statistics


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5. Challenges of Vietnamese Banking SystemFinancial crisis 2008 has apparently not showed its impacts on the banking and financialsystem Vietnams. During the period from 2008 till 2010, Vietnamese Banking sector still

reported furthermore high profit growth.

However the challenges, which Vietnamese Banking System is now facing with, are

more likely coming from its internal structure. The domination of SOCBs and their bad

loans to some unhealthy SOEs majorly contributed making turbulent in Banking sector

Vietnams. According to SBV the ratio of bad debt of total loan was 8.82% as of the end

of September 2012. Because of a lack transparency and week accounting practice, this

amount should not be completely trusted. Moodys Investor mentioned of at least 10%,

Fitch Ratings Co. estimated that the figure is as high as 15%; among smaller banks some

say it might be as high as 50%. In any case that level of non-performing-loan ratio is

highest among the South East Asia countries.

Lack of transparency is also one of struggling questions for the Banking System in

Vietnam. Except some big listed banks, there are almost impossible for outsiders to gain

an access to the real financial situations especially of the small banks. Even annual

financial reports are scarcely published. Indicators of domestic institutions typically

showed higher profitability and better banks performance than the one in the reports

of foreign institutions. The above mentioned non-performing-loan ratio is just one

example of numerous cases of non-transparency in the Vietnamese banking system.

Such antagonistic sources of information confused investors and are preventing the

development of a healthy financial system.

But the todolist of Banking System in Vietnam will not only stop at just handling with

bad debts or improving international standardized accounting practices in banking

system. End of 2012 SBV has had to inject VND 28 trillion into the state-owned Saigon

Thuong Tin Commercial Joint Stock Bank (Sacombank), helped it dealing with massive


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cash withdrawals after its chairmans resignation. Sacombank was then forced to

merger with Eximbank. That was the second time in last half ending of 2012 the central

bank has pumped money in this kind of state-owned credit institution. Its first capital

injection in Asia Commercial Joint Stock Bank (ACB) was undertaken in August 2012

after Nguyen DucKien, co-founder of Vietnams five-most valuable banks, was arrested.

Mismanagement of state-owned banks and of SOEs is increasing many troubles not only

for Vietnams banking and financial system but for the economy as a whole. The banking

sector ties closely to giant state-owned enterprises, which are themselves addled with

high level of bad debt. They seized the opportunities to expand, moving into sectors

where they had no expertise. The Vietnam Electricity Group, known as EVN, is the

countrys sole power supplier. Even when the country suffers from power cuts because

the government does not allow it charge enough to recapitalizes generation costs, EVN

expanded into building property, telecoms, banking & stock brokerage. Vinashin, the

state-run ship builder, nearly collapsed in 2010 after defaulting on GBP 400 million of

debts. Nine executives were jailed for the mismanagement of state resources.

6. Improving legal environmentWith issuing legal regulations for the banking sector, for instant Decree 141/2006/N-

CP regulating required legal capital levels of credit institution Circular 13 and 19

regarding the safety ratios in operations of financial institutions, the Vietnams

authorization attempts to establish a legal basement for banking and financial activities

in system. SBV is working on strengthening banking law enforcement in banking and

cooperating with other international institutions such as World Bank, IMF, and CIDA15 in

improving the legal framework.

Improving and modernizing the countrys banking system and financial regulations in

accordance with international standards are what Vietnamese Government aiming at, in

order to maintain the attractiveness of Vietnams economy for investors.

15Canadian International Development Agency


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(Unit: VND Billions)

Table 1: State-owned Credit Institutions

16Ho Chi Minh City Stock Exchange

17Vietinbanks Statistics

18Reuter - 17.05.2011

19Vietinbanks subsidiary20

Vietinbanks Statistics21

Bloomberg - 27.12.2011

22BIDVs subsidiaries

23BIDVs Prospectus for IPO 2011

24BIDVs Prospectus for IPO 2011

25Agribanks subsidiary

26Argribanks General Information - http://www.agribank.com.vn

27http://www.zbc.co.zw 26.02.2013

28Housing Bank of Mekong Deltas Annual Financial Report 2011

29Reuter 24.06.2011

State-owned credit institutions

No Name of Banks Securities Code/

Stock Exchange

Market

Charter

Capital

Total Assets

(2011)

Government's

Stake

1 Joint Stock Commercial Bank

for Foreign Trade of Vietnam

(Vietcombank)

VCB/HOSE16 23,174 333,73517 90.70%18

2 Vietnam Bank for Industry

and Trade

(Vietinbank)

CTG/CTS19/HOSE 26,281 414,98620 64%21

3 Bank for Investment and

Development of Vietnam

(BIDV)

BSI/BIC22/HOSE 23,011 398,58323 100%24

4 Vietnam Bank for Agriculture

and Rural Development

(Agribank)

AGR25/HOSE 29,154 560,00026 51%27

5 Housing Bank of Mekong

Delta

3,055 47,28128 68.1%29


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Listed Joint Stock Commercial Banks


Stock Exchange

Market

Charter

Capital30

Total

Assets31

Total

Debts32

1 Asia Commercial Bank (ACB) ACB/HNX 9,376 281,019 269,060

2 Military Commercial Joint

Stock Bank (MB)

MBB/HOSE 10,000 138,831 128,533

3 Nam Viet Commercial Joint

Stock Bank (Navibank)

NVB/HNX 3,010 22,496 19,280

4 Saigon Thuong Tin

Commercial Joint Stock Bank

(Sacombank)

STB/HOSE 10,740 141,468 126,921

5 Viet Nam Export-Import


(Eximbank)

EIB/HOSE 12,355 183,567 167,264


Table 2: Joint Stock Commercial Banks

30SBVs Information - http://www.sbv.gov.vn

31http://www.cophieu68.com

32http://www.cophieu68.com


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Other unlisted remarkable JSCBs


Stock Exchange

Market

Charter

Capital33

Total Assets Total

Debts

1 Maritime Commercial Joint

Stock Bank (Maritime Bank)

8,000

2 Saigon Joint Stock Commercial

Bank (SCB)

10,508

3 South East Asia Commercial

Joint Stock Bank (SeAbank)

5,334

4 Vietnam Technological


(Techcombank)

8,848


Table 3: Some other important JSCBs

33SBVs Information - http://www.sbv.gov.vn

Money & Banking Paper - The Banking System in Vietnam

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