Although still being very young compared to the history of hundreds of years of the banking system of developed countries, it does not prevent the Vietnam banking system’s aspiration of reaching out to the globe.
Once again, the dream of being a modern banking system at the regional level is mentioned in the Vietnam Banking Industry Development Strategy to 2025, with a vision to 2030.
Aspiration is one thing, but realising that aspiration is a thorny journey, requiring a great determination and effort, not only from the banking system, even we may have to accept the sacrifice to be successful.
Looking back on the process since its establishment until now, the State Bank of Vietnam (SBV) has always been a government’s agency, subject to the administrative intervention of the government. Therefore, the central bank’s competence in building and operating monetary policy is still limited, the independence level of the SBV is still relatively low, making the operation of monetary policy sometimes embarrassing.
The second important issue is to clearly define the operational objectives for the SBV. The targets set out in the Strategy for the State Bank such as “controlling inflation at a level consistent with the orientation of socio-economic development in each period, supporting macroeconomic stability, promoting sustainable economy growth targets is not much different from the operational objectives of the SBV as stipulated in the State Bank Law in 2010.
Because the supreme goal of a modern central bank is to ensure the operational safety of the banking system and stabilise the value of money, the remaining goals are the results of achieving the above objectives.
As for the credit institution system, the “dual target” is not easy. Because to achieve the goal by the end of 2020, commercial banks basically have their ownership capital according to Basel II standards, in which at least 1215 commercial banks have successfully applied Basel II (standard method or more), with at least 1 to 2 commercial banks among the top 100 largest banks (in terms of total assets) in Asia, requiring banks to not only grow in scale but also asset quality.
From the beginning of 2016, the SBV requested the pilot application of Basel II at 10 banks (Vietcombank, VietinBank, BIDV, MB, Sacombank, Techcombank, ACB, VPBank, VIB and Maritime Bank) and set the roadmap to the end of the year 2018, these banks must basically meet the requirements of Basel II. However, after three years of efforts, only Vietcombank, VIB and OCB have been recognised by the SBV to meet Basel II standards.
According to Fitch Ratings’ calculation, Vietnam banking system needs $20 billion, equivalent to 9 percent of GDP to meet the Basel II implementation. So this year and in the next year, the banks’ race to raise capital will be more exciting and fiercer than it was a few years ago. In this race, the difficulties belong to the group of State-owned commercial banks because under the Strategy, from now to 2020, the State will still hold 65 percent of these banks’ charter capital. That means, if the State does not pour money, these banks cannot raise capital. Besides, in the context of big demand while the capital is only limited, banks cannot increase capital. For these banks, the only solution to meet Basel II standards is to narrow the size of assets, especially risky assets. Even some banks are forced to merge with each other to improve their financial capacity and competitiveness. But that is also the price to pay to achieve a greater goal for the whole system.
