The banking sector of Vietnam has historically suffered from low public confidence, regulatory and managerial weakness, high levels of non-performing loans, and an inability to mobilize private sector capital efficiently to support economic growth. Although the Banking Vietnam system has made progress in improving governance, risk management, and transparency in recent years, these issues remain critical as the Vietnamese government prepares to privatize commercial banks.
Vietnam Faces Challenges in Attracting Foreign Banks
One of Vietnam’s most attractive features as a market is also one of its most significant barriers to entry. A combination of low-interest rates and lack of growth means banks are reluctant to take additional risks to expand their geographic reach. Attracting foreign investment will be difficult if Banking Vietnamcan address these issues. Vietnamese and foreign-owned banks face challenges in attracting consumers, who seem primarily uninterested in opening accounts.
Public confidence in domestic institutions remains low, and a high level of non-performing loans means many people have other uses for their money. However, Banking in Vietnam has not taken advantage of these opportunities. Most bank consumers are still uninterested in opening accounts, and domestic institutions have largely been unable to meet foreign demand for investment services. This lack of development is surprising given that Vietnamese banks face far fewer regulatory constraints than their peers in other emerging markets.
Recent efforts to reform Vietnam’s financial sector indicate a new focus on Professional Banking, improving public confidence by encouraging greater transparency in lending decisions. Still, it remains unclear how these changes will affect domestic demand for banking services. Until local interest in banking increases significantly, attracting foreign investment will remain challenging.
Banking System Remains Under Stress
The Bank for International Settlements says that bad debts accounted for more than 3% of total loans at all Banking Vietnam as of last year, down from nearly 5% four years earlier. Non-performing loans have risen as a share of total loans, although they remain relatively low by international standards. Vietnamese banks also have to contend with significant increases in non-performing assets associated with dud lending to state-owned enterprises and government organizations.
According to recent data from Vietnam’s State Bank, the number of non-performing loans at all state-owned commercial banks rose nearly. Vietnam’s rapid growth over recent years, fueled by foreign investment and trade, has helped boost profits and, in turn, bank capital. But faster credit growth has been accompanied by increasing lousy debt ratios. As a result of these developments, operating conditions at banks remain challenging.
The State Bank recently estimated that profit margins would fall to around from roughly on average as rising bad debts eat into profitability. Meanwhile, long-term interest rates have trended higher over recent quarters. This could put further pressure on asset quality at Banking Vietnam and make it more difficult for them to fund their balance sheets as economic growth continues to slow amid an ongoing political leadership transition.
Vietnam Economic Update
Vietnam’s rapid development in recent years has been accompanied by a rapid increase in bank lending, which has expanded faster. Total loans grew at an average annual rate of more than three times as fast as growth. State Banking Vietnamcurtailed credit growth to prevent a rise in inflation. As a result, credit growth slowed to 14 percent on average, even though economic growth accelerated. Vietnamese banks have faced mounting non-performing loans amid weak economic conditions.
The weaker bank outlook has resulted in Vietnam’s public confidence in its financial system remaining low by regional standards. According to an annual World Bank survey of Banking in Vietnam, less than 30 percent of respondents rated their bank as trustworthy. Only 28 percent said they would buy products or services from a bank without knowing its reputation.
Similarly, Vietnamese households are slowly adopting new technologies such as online banking and mobile payments, even though per capita internet penetration reached 37 percent. A lack of consumer trust may have contributed to only 22 percent of Vietnamese citizens using credit cards, the lowest share among all markets covered by Visa. In comparison, 44 percent said they preferred cash over all other payment methods. Because Vietnamese banks lack strong customer loyalty and face negative public sentiment, competition is limited.
Benefits of Banking Vietnam
Banking in Vietnam offers many benefits.
For one, opening a bank account in Vietnam is relatively easy. The process is not as complicated as in other countries.
The interest rates for savings accounts and loans are generally quite favorable.
Finally, banking Vietnam is becoming increasingly convenient, with more and more banks offering online and mobile banking services.