Banks and challenges

	Tightening credit criteria: Difficult for banks
	Vietnamese banks target more overseas markets
	Foreign banks in Vietnam raise chartered capital

Dealing with bad debts is one of the major challenges of the banking sector. Photo for illustration.

Difficult to predict

According to many experts, of macroeconomic variables including exchange rates, interest rates and inflation, the exchange rate is considered the most difficult to manage and administer. Therefore, the exchange rate between VND and USD tends to rise in the domestic market in recent days, even reaching a record, breaking the previous stability. The impact of price increases has mostly come from the external market, so experts affirmed that the pressure on the exchange rate is still large and even tends to increase asthe currency war has not come to an end. Nguyen Tu Anh, Deputy Director of Monetary Policy Department, State Bank of Vietnam (SBV) said that since the beginning of 2019, there has beena lot of challenges such as the world economy slowed down and the US-China trade war that makes capital flow out of emerging economies, especially unstable macroeconomic economies.

In addition, the pressure to raise the exchange rate may also cause a "headache" for the State Bank in "joining hands" to stabilise inflation as targets. Because recently, a series of essential goods and services for people's needs such as gasoline, electricity, health andeducation all increased prices. This requires smooth coordination between monetary policy and fiscal policy. According to Nguyen Tu Anh, the balance of fiscal policy decreases due to the public debt ceiling, so the role of monetary policy is increasing. This requires close coordination between the SBV and the Ministry of Finance, especially the State Treasury.

However, despite such a difficult situation, the experts still put their faith thanks to the positive factors of the macroeconomy, because capital still flows into the Vietnamese market, as well as the flexible monetary policy of the SBV. Economist, Dr. Vo Tri Thanh said: "The State Bank is getting smart". This "intelligence", according to Thanh, lies in the fact that the SBV has takenthe initiative; stabilised expectations and combined with ingenuity in using smooth, flexible monetary tools. Moreover, bank liquidity is not stressedbecause the fiscal policy has coordinated and strengthened monetary policy.

At a recent conference about the banking sector, Deputy Governor Nguyen Thi Hong said that the Vietnam's market is characterised by a high expectation on exchange rate. However, while most of the emerging market's currencies have depreciated sharply against the USD, sometimes up to 10%, some countries have reduced foreign exchange reserves to intervene to stabilise the exchange rate, then the domestic prices in 2018 were quite stable. The exchange rate increased by about 2.2-2.3%, facilitating production and business activities, attracting investment and supporting export.

As a result, the State Bank said that since the beginning of the year, it has bought $US8.35 billion to build foreign reserves, raising the foreign reserve to about $68-69 billion, so it is willing to sell foreign currency to stabilise the market when necessary.

Therefore, many experts believe that the exchange rate of the remaining months of 2019 will fluctuate, but it is going to stay below 2%. This has been helping to create the expected disparity in the benefits of holding Vietnam dong and USD, because at the moment, the dong deposit interest rate is sometimes up to 8%, while the USD deposit interest rate is 0%, so the fluctuation of exchange rate at around 2% at present will not be beneficial. Since then, the value of the dong has been improved, avoiding the "dollarisation".

Take care of the "health" of banks

If external impacts have been proactively responded, even the response from management agencies; then the internal factors such as bad debts, financial capacity and system management still need more changes. The good news is that the results have been quite positive, bringing a "brighter" future to the whole system. According to the SBV, at the end of February 2019, total assets of credit institutions reached 10.99 million VND, nearly equal to 2018, increasing by 9.9% compared to 2017.

Management capacity, inspection, internal audit and risk management of banks are gradually improved, approaching international practices; cross-ownership is limited. This has been reflected in the stocks of the banking sectorover the time. This group of "king" stocks has played a leading role in the market and has been concerned by foreign investors.

However, about bad debts, this "blood clot" has shown signs of disintegration but it is not as expected. By the end of February 2019, the internal NPL ratio was 2.09%, down from 2.46% at the end of 2016, but increased compared to 1.99% at the end of 2017 and 1, 91% at the end of 2018. Meanwhile, in many commercial banks, although most banks tend to decrease, even below 1%, there are still some banks with high NPL ratios such as Sacombank (2.11%), NCB (2.12%), SHB (2.4%).By the end of 2018, although many banks reduced and even erased debts at the Vietnam Asset Management Company (VAMC), there are still many banks that increased bad debts, such as SCB (up 10.6%, VietinBank(up 81.6%).

Therefore, Bui Van Hai, Deputy Director, Banking Supervision Department, SBV's Inspection and Inspection Agency proposed that there should be solutions as well as coordination between ministries and sectors to strengthen bad debt management. The Ministry of Finance will soon implement a solution to deal with bad debts related to debts in capital construction related to central and local state budget and bad debts of state enterprises, whilethe Ministry of Natural Resources and Environment will study and soon issue guiding documents for cases of acceptance and registration of the mortgage of land use rights and properties attached to land.

The above problem shows that the "health" of the banking sector still has many remarkable points. Meanwhile, the short-term goal to 2020 of this sector is that commercial banks will have equity capital under Basel II standards. At least 1-2 commercial banks are among the 100 largest banks in total assets in Asia; completing the listing on the Vietnamese stock market.

Experts said thatto achieve the above objectives, Vietnam's banking sector must strive to take opportunities and overcome all challenges from the world and domestic economic context. Nguyen ThiHoa, Deputy Director in charge of the Banking Strategy Institute, the State Bank, said that banks need to be healthy and improve financial capacity both in scale, quality and efficiency, ensuring safety of the systemandimprove governance and transparency in banking operations.

In particular, in order to have a better development, according to Ms. Nguyen ThiHoa, the Vietnamese banking system needs to innovate to catch up with a new trend; vigorously transform the business model of commercial banks in the direction of "credit" to diversifying products and services of non-credit; divest investment outside the sector, non-financial sector, many risks; modernize information technology systems and internal payment systems.