Small banks need to make big impressions

August 22, 2011 | 09:00
(0) user say
Vietnam’s banking sector needs a shake-up with too many banks offering not enough services.
illustration photo

“Approximately 80 banks in such a small economy like Vietnam is too many,” said Tran Dinh Thien, head of Vietnam Institute of Economics.

Le Duc Tho, Vietinbank deputy general director, agreed by saying 40 domestic banks, 30 wholly foreign-owned banks and foreign bank branches, and some 10 financial leasing companies operating as credit institutions was bloated number.

“If these banks operated well, there would be good foundations for market development. But the number of weak banks is high, especially when it comes to small banks with very limited services,” he said.    

Meanwhile, GPBank general director Pham Quyet Thang said compared with their peers in the region Vietnamese banks were very small in terms of scale while the density of banking service points per capita and the number of banking service users were very low.

“In advanced countries, there is one banking service point per 1,000 people while Vietnam is far from reaching this rate and users of banking services are mostly limited to cities. In rural areas, residents know almost nothing about banking services,” Thang added.

Banking expert Dr.Nguyen Tri Hieu said the Vietnamese banking market was saturated with small banks and a part of foreign bank branches being redundant.

“Small banks with low capital, small marketshare, undiversified products, poor risk management and bad corporate governance find it difficult to grow. In addition, most foreign bank branches in Vietnam served customers with long-term relations with headquarters,” he said.

As a result, banking analysts say Vietnam should restructure its banking system.

Hieu suggested domestic banks merge with the encouragement and supervision of the State Bank under a legal framework in line with the international practice.

“For foreign bank branches, while creating favourable conditions Vietnam needs to adopt regulations to ensure that their operations would not give rise to unfair competition or deter domestic banks’ development,” he added.

Meanwhile, governor Nguyen Van Binh said the State Bank would reshuffle and consolidate the banking system. “Small-sized banks need to operate in a way that conforms to their scale. The most important thing about a credit institution is that it is financially healthy and this doesn’t have too much to do with size,” Binh told VIR.

The new governor said mergers were necessary if credit institutions wanted more capital for further development and more services. “The State Bank, however, would encourage banks to merge rather than force them to do so.”

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional