In an effort towards a healthy, safe and efficient banking system, financial capacity is constantly being strengthened. Statistics from the State Bank of Vietnam (SBV) showed that by the end of 2018, the total assets of the whole system reached over 10.8 quadrillion dong, increasing by 8.23 percent; own capital of the whole system reached over 785 trillion dong, an increase of 10.02 percent; charter capital of the whole system reached over 570 trillion dong, an increase of 11.4 percent compared to 2017.
On the contrary, the capital adequacy ratio (CAR) of the banking system showed a slight decrease when it reached only 12.02 percent; lower than 12.43 percent at the end of 2017.
The positive results of the banking industry have been and will actively support economic growth. “Vietnam is in a strong position to continue developing in 2019. There are many opportunities for the government and SBV to reinforce the development of Vietnam’s economy,” said Nirukt Sapru, general director of Standard Chartered Bank (Vietnam) Limited.
With its position as a market receiving much FDI, Vietnam can enjoy positive impacts from trade agreements such as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU-Vietnam Free Trade Agreement (EVFTA), as well as having the opportunity to work with foreign companies and be assisting in the implementation of international practices, enhancing the ability of domestic companies, especially small and medium enterprises, towards the global supply chain.
However, in order to actively support economic growth in 2019 and the following years, Nirukt Sapru said that the banking sector needed to solve five well-established issues, including:
Firstly, ethical standards and transparency in the banking industry should continue to be focused on developing a business environment and contributing to a comprehensive economy with fair competition.
Secondly, digitalisation and network security will continue to play the most important role. In the programme to strengthen the goal of digitising and simplifying procedures, the government should allow automation of payment systems to connect with online channels.
Thirdly, the non-banking financial sector should be appropriately regulated, especially in the provision of consumer credit, in which the control of capital, liquidity requirements and debt recovery takes critical position.
Fourthly, “mortgage lending” should be excluded from real estate loan figures. This list should be encouraged with the aim of providing housing to residents provided they are properly controlled.
Last but not least, Basel II deployment will continue to improve governance standards in the market. As a link in this process, banks should be assigned ratings and credit growth limits based on their capital, liquidity ratios and strategies.
Although it is expected that banking industry will continuously contribute to Vietnam’s economic growth in 2019, experts also believe that it is facing internal factors. “For the financial-banking sector, profitability and asset quality have improved a lot but capital safety is still a matter of concern,” said Pham Hong Hai, general director of HSBC Vietnam.
Asset quality has been improved because the bad debt ratio has gradually decreased over the years (by the end of 2018, the internal Non-performance loan- NPL ratio was at 1.89 percent). In addition, the government and SBV also issued many macro security measures to reduce lending in areas of low productivity or speculative nature such as real estate. Specifically, system risks to loans for real estate business increases from 150 percent to 200 percent; the rate of using short-term capital for medium and long-term loans reduces from 60 percent in 2016 to 40 percent in 2019.
These reforms have contributed to increasing the bank’s asset quality while ensuring that bubbles are not formed in the economy.
Not being as positive as above, the capital adequacy ratio (CAR) shows negative signs when it has gradually decreased in recent years. However, the rapid increase in bank assets does not go along with the ability of banks to increase Tier 1 capital.
This issue is even bigger in state-owned banks, when CAR can drop below the minimum eight percent when Basel II will be applied in 2020 (as of the end of November 2018, CAR of this sector was in 9.33 percent, down slightly from 9.63 percent at the end of 2017). Thus, capitalisation of state-owned banks may be a priority. However, this is likely to become a significant risk when the 2020 milestone is approaching.
