December 04, 2008

The Banking Working Group, which represents more than 30 institutions from over 15 countries, basically projects in our roadmap what the banking and financial sector should look like in five to seven years in Viet Nam, so that participants can make their own plans accordingly. This is not an easy task as it requires building consensus, evaluating options and indeed making changes as unexpected situations arise.In the context of Viet Nam, these recommendations fall into three broad categories: a forward looking roadmap for the banking industry; efficiency; and clarity in the way the market and regulations should work to ultimately reduce the "cost of delivery" of banking products and services; and clear guiding principles and removal of major impediments for the Consumer Banking and Consumer Finance industries.

There are three key areas that need addressing. The first one is speedy implementation of Decree 22 dealing with the process involved in converting the three international banks that have been granted a licence to locally incorporate into a subsidiary.The second one is clarity on when and to what level the current cap of 20 per cent holding by an international bank in a local bank under Decree 69 would get lifted. Such clarity will lead to a much more constructive and planned approach for the banking sector in Viet Nam. The third one is consolidation: currently there are over 80 banks in Viet Nam where the top 20 banks are estimated to do the bulk of the banking business. The bottom 25 per cent of the banks have limited business, are undercapitalised and may not be stable going forward.

Banking is like any manufacturing industry where if you have too many small players you do not get efficiency of scale, cost and skills. Additionally, a bank is liable for the safety of its depositors’ money and if it runs itself aground on either cost efficiency or not enough attention to risk it would create a loss of confidence in the banking system as a whole.