Experts discuss Vietnam’s financial security

Financial expert Can Van Luc said that Vietnamese financial markets--which include banking, securities and insurance--developed rapidly from 1990’s but lacked structural balance in and remained small in scale.

He cited end-of-March statistics showing that banking and non-banking assets accounted for 72.1% of the financial market, bonds 8.2%, insurance 0.8% and securities 18.9%.

The financial market was estimated to be equivalent to 250% of the country’s gross domestic product (GDP) by the end of 2016, which is low compared to countries such as Korea, Malaysia, Singapore, Thailand and China.

In addition, Vietnam faces fiscal risks, including rapid increases in public debt to GDP ratio (from 41.6% in 2006 to 63.7% in 2016) and a high budget deficit.

Luc said that the Vietnamese commercial bank capital adequacy ratio (CAR)--the ratio of a bank’s capital to its risk--is estimated at 11%, still low in the context of quite high credit growth (at around 17-18% per year).

Luc said that Vietnam should hasten the restructuring of the State budget, public investment, management of public debt, the restructuring of credit institutions and handling of bad debts to mitigate risks.

Attention should also be paid to technology-related risks as digital finance and blockchain emerge as new trends, Luc said.

Expert Nguyen Dai Lai said that the implementation of Basel 2 in Vietnam remains slow. It will be piloted at 10 commercial banks until 2020 before being applied to the whole system. Meanwhile, many countries move toward Basel 3, instead.

Consolidating the risk management system within the commercial bank system is urgent not only to successfully implement Basel 2 but also to develop sustainably, Lai said.

According to Nguyen Duc Do, Deputy Director of the Financial Economic Institute, in the condition of high public debt and bad debt, high interest rates and low inflation are the two biggest risks to financial security of Vietnam because it might undermine the debt payment capacity of both the Government and enterprises, resulting in cuts in investment and slow economic growth.

Duong Thu Ngoc, a representative from the Department of Monetary and Financial Security under the Ministry of Public Security, said that insider trading and rumours also pose significant financial security threats.

Ngoc said these violations happen due to an incomplete legal framework with a lack of deterrent punishments, in addition to weak financial supervisory capacities and unhealthy competition.

According to Pham Tuan Anh from the University of Commerce, Vietnamese firms must attach special importance to financial risk management, which is critical to firm’s operation efficiency and sustainable development.

Enhancing risk management capacity is critical to improving their competitiveness, Tuan Anh said.