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Vietnam’s banks: small capital, low technology, bad debt

VietNamNet Bridge - While commercial banks in the world are changing fast to adapt to the 4.0 industrial revolution, Vietnam’s banks are still busy trying to raise capital.

VietNamNet Bridge - While commercial banks in the world are changing fast to adapt to the 4.0 industrial revolution, Vietnam’s banks are still busy trying to raise capital.


State-owned banks are considered the pillars of the national economy

Le Xuan Nghia, a banking expert, said after the 2008 financial crisis, the standards on bank administration were strengthened heightened, leaving Vietnam far behind.

Considered the ‘pillars’ of the national economy, the four largest banks, where the state holds a controlling stake, have a capital adequacy ratio (CAR) just above 9 percent, the minimum required level.

International institutions warned that if Vietnam’s banks cannot increase their capital, once Basel II’s standards are applied, their CARs may drop to 7 percent.

Joint stock banks have higher CARs, but they also find it difficult to observe Basel II, because they not only have to satisfy the requirements in capital, but also follow a series of strict requirements stipulated in Basel II.

The year 2020 is nearing, but to date, of the 10 banks that will apply Basel II in a pilot program, only VIB, VP Bank and Vietcombank are ready.

Dang Ngoc Duc, head of the Banking & Finance Institute, said the total capital of four largest banks in Vietnam is just equal to the capital of a medium-scale bank in the region. The small capital makes banks vulnerable to risks. 

“In the banking sector, the scale of total assets and stockholder equity serve as a ‘buffer’ against risk. The capital of Vietnamese banks is too small,” Duc commented.

Modernization is a compulsory in the second phase of the bank restructuring process. However, analysts say that digital products introduced by banks so far remain very poor.

“In 2016, when I visited a bank branch in Spain, the branch had 95 workers. But when I once again met the bank’s manager last October, I heard that there are only three workers left and all operations are carried out online,” Nghia said.

An analyst, agreeing with Nghia, said while the banks in the world are using technology to manage service quality and customers, and develop new products and ecosystems, most Vietnamese banks still cannot create a digital space for customers.

The latest reports show that the bad debt ratio has increased again despite good macroeconomic indicators.

The fifth-group debt, or irrecoverable debt, of 23 reported banks, increased by 31 percent, compared to earlier this year, to VND46.9 trillion.



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