Vietnam’s recent admission to the World Trade Organisation has created a boom in the banking system. Many entities have registered for banking services. However, the Government is considering these applications cautiously.
Dr. Tran Dinh Thien, deputy head of the Central Institute for Economic Management, says that the operations of the stock market several years ago have changed the degree of risk to the financial and banking system in Vietnam. Worthy of note is that this system has not experienced or run any risks from the stock market. Therefore, Mr Thien says Vietnam needs an overall and comprehensive study of the system for a correct assessment of the risks.
“While drafting the 2011-2020 socio-economic development strategy, we propose priority be given to the financial security system. This issue should be taken into account, given the impacts of the 1997 Asian financial crisis and recent fluctuations on the stock market,” says Mr Thien.
Stock, banking and financial markets are said to have the highest levels of development. However, their development relies on secondary markets such as the real estate and labour markets. Therefore, such an unstable and fledgling real estate market could pose a real risk to the financial and banking market in Vietnam. In addition, the establishment of new banks in the country at present is contrary to market rules. Normally, the stock market is established after the banking system develops to a certain level, but the trend in Vietnam has been in the reverse order.
Enterprises that are very important clients for banks could pose another risk to the banking system. Vietnam has seen a large number of enterprises established in recent years, but their competitive capacity remains poor, posing a great challenge to the banking system. In addition, there is discriminatory treatment between foreign banks that serve foreign direct investment (FDI) enterprises and domestic banks that provide services for small and medium-sized enterprises. This requires domestic banks to develop their own strategies to attract FDI enterprises unless they want to take more risks.
After the stock market came into operation, there were high inflows and outflows of capital in Vietnam. However, Dr Thien warns that besides withdrawals, a massive inflow of capital could also cause far-reaching consequences.
Following the establishment of the stock market, a large number of securities companies and banks have been licensed to operate in Vietnam, creating a fierce competition in the banking system. Many banks have fought tooth and nail to entice high-end personnel from each other by offering them high salaries, better working conditions, and to attract clients by providing better services. In addition, the management capacity and global marketing strategies of domestic banks have proved inefficient. According to Dr Thien, domestic banks will find it difficult to compete with their foreign partners if these issues are not addressed immediately.
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