Vietnam should reduce 30pct of small banks

When there are any problems related to bank liquidity, small banks often push up interest rates to attract capital. At that time, larger banks are forced to run the race of increasing interest rates.

“Vietnam still needs to remain open the market to foreign banks to operate in accordance with WTO commitments. However, it should reduce the number of small banks in the form of merger and acquisition but the ratio is no more than 30 percent”, Prof Dr Nguyen Thanh Tuyen, Rector of the HCM City University of Economics and Finance said.

Prof Dr Cao Cu Boi, former economist of National Economics University, said recently banks have been racing to boost branch expansion. These banks do not have enough resources, so as to open new branches, they must immediately raise more funds.

“When having enough funds as prescribed, there is no certainty that the performance of those banks will be better,” Boi said.

Khong Van Minh, director Jaccar investment fund, said that Vietnam has too many small banks, while it should focus on big banks that are really strong on domestic resources.

“When there are problems on bank liquidity, small banks often push up interest rates to attract capital and retain customers. At that time, larger banks will be forced to run the race of interest rates. If we do not offer a solution, then the interest rate will hardly be stable, ” Minh said.

Prof Dr Nguyen Thanh Tuyen said that Vietnam should restructure the banking system by expanding the scale of capital. Also, the State must have policies to increase financial autonomy for commercial banks, striving to expand the liberalisation of interest rates under credits to international practice.

According to Prof Dr Cao Cu Boi, if banks want to boost intensive operations, they must re-define the objects of their own customers to avoid promoting risky branch expansion.

For example, banks specialising in agriculture should be aimed at rural customers, businesses operating in the agricultural sector. If allowing these banks open many branches in a certain area, this will bring about more efficiency. – Vietbiz24

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam small banks