microfinance industry report - Vietnam - Banking with the Poor Network

2. Financial Sector Overview
The formal financial sector in the country is
supervised by the State Bank of Viet Nam (SBV),
which has branches in all 59 provinces and five
municipalities and regulates and supervises banks,
non-bank financial institutions, and the regulated
financial cooperatives, ‘People’s Credit Funds
(PCFs)’. SBV operates the Credit Information Center
(CIC), functioning similarly to publicly-owned
credit reference bureaux elsewhere. Supporting
the regulator is the Deposit Insurance of Viet Nam
(DIV), which issues deposit certificates to financial
institutions and manages liquidation of failed banks
and PCFs 17 .
2.1 The Main Players
A diverse range of banks provide wholesale and
retail banking services to different market segments,
namely state-owned, urban and rural joint stock,
joint venture, and foreign banks. The four main stateowned
commercial banks (SOCBs) dominate the
sector. In addition, there are 37 joint stock commercial
banks (JSCBs), which account for roughly 15% of
total assets, five joint venture banks (JVBs), and 28
foreign-owned banks with 39 branches. 18 From 2003
to 2006, the number of banks increased from 69 to
80, but the number of joint stock banks has been
consolidated from 54 to 37 through mergers and
acquisitions.
In the initial stages of Viet Nam’s economic transition,
individuals did not use the banking system to any
large extent. In 1993, only 25% came from banks
and other formal sources 19 . Until 2004, Viet Nam had
rather shallow financial depth. However, by 2007 that
depth had increased sharply, with indicators such as
the credit/GDP ratio reaching 82.5%, and M2/GDP
rising to 112.1% from a base of 23.8% in 1996 20 . Of
this, credit to the private sector increased from 18%
in 1992 to 68.6% in March 2007 21 .
17 DIV: Annual Report 2005: Report on 2005 Operations and
Business plan for 2006.
18 State Bank of Viet Nam: 2004 Annual Report.
19 1993 Viet Nam Living Standards Survey (VLSS) quoted in Viet
Nam Development Report 2006: Business.
20 ADBI: Managing Capital Inflows: the Case of Viet Nam, May 2008.
21 IMF: Viet Nam Country Report 07/386, Statistical Appendix,
December 2007.
Reforms are continuing to transform (“equitize” or
privatize) SOCBs to a more commercially sound
footing. These SOCBs have improved operations
and have strengthened their balance sheets over
the past five years, but an estimated average rate of
8-10% non-performing loans will require significant
provisioning as they undergo equitization over the
coming three years. The government has already
invested $635 million to recapitalize the banks and
offset losses 22 (from 2001-05).
With initial support from CIDA, the network of
People’s Credit Funds (PCFs) were established in
1993 under a Prime-ministerial decision. PCFs are
community-based financial cooperatives that are
owned, operated, and governed by shareholding
members, modeled after the Desjardins (caisses
populaires) in Quebec, Canada. PCFs are licensed
under the Cooperative Law, regulated by the Law on
Credit Institutions, and supervised by the SBV under
the Banking Law on their adherence to set standards
regarding financial management and member
capacity. In 2007, SBV granted business licenses to 50
new PCFs, and as of December 2007, there were 982
PCFs operating in 56 provinces and cities. A central
apex institution, the Central People’s Credit Fund
(CCF), was formed in 1995. CCF, which may soon
receive a name change to the Cooperative Bank,
attracts and mobilizes capital from shareholders (the
PCFs and the four SOCBs), donors and public deposits,
serves commercial and urban customers from its 54
branches and supervises/intermediates funds to the
local PCFs. Like VBARD and VBSP, the CCF is regulated
by the Credit Institution Law and is supervised by the
SBV 23 .
Policy lending is a key feature of Viet Nam’s financial
sector. The Viet Nam Bank for Social Policy (VBSP) is
mandated to serve the poor and other beneficiaries
of government support. The Viet Nam Development
Bank (VDB) serves primarily government projects,
state-owned enterprises and, to a small extent (and
with the support of international donors), private
SMEs in the infrastructure and export sectors. Both
22 World Bank: Country program Strategy 2007-2011. Some analysts
believe the NPL of the SOCBs is even larger at 15-30% as per
Federal Reserve Bank of San Francisco: Asia Focus, February 2008.
23 World Bank: Taking stock, 2006.
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