microfinance industry report - Vietnam - Banking with the Poor Network

For many of the JSCBs, however, the average loan
size per customer exceeded VND 600 million (2006),
indicating that they do not in general serve the lower
income segment.
While several JSCBs are backed by credible foreign
partners, others have much less risk management
capabilities, which raises concerns about credit
quality especially as many smaller JSCBs have
invested heavily in stocks and real estate. Stock
markets lost dramatically in 2007 and the real estate
bubble may lead to eventual losses there too. It is
estimated that 10% of all bank loans in early 2008
were for real estate, compared to 3% a year before 25 .
Figure 5. Recent Credit growth
2.3 Savings Services
Formal financial intermediation has increased rapidly
in Viet Nam, if not at the frenetic pace of credit.
Confidence in the banking system has grown, as
evidenced by the growth in deposits from 43% of
GDP in 2000 to 82% in 2006. 26 Recently, however,
this confidence has been shaken by the near-crash
of the stock exchanges and the increase in prices and
inflation, and deposits have dipped during the past
year (see Figure 9). Interestingly, deposits in gold have
increased and banks such as VBARD are accepting
increasing gold deposits from customers.
Figure 6. Growth of credit, deposits, and
broad money 27
VBARD is the dominant provider of rural financial
services. It does not directly target the poor, but
serves poorer segments of the population through
targeted programs capitalized by donor funds
and through framework agreements with ‘Mass
Organizations’, particularly the Farmers’ and Women’s
Unions. SMEs are also an important market segment
for SOCBs and the urban joint-stock banks.
25 World Bank: Taking Stock, 2008. See also GS Economic Research
Website: Asia Economics Flash, May 2008.
Based on a rough estimate, there are about 25 million
active voluntary savings accounts provided by formal
financial institutions (2006), which is more than the
total number of households in the country 28 . This
represents a total of $49.9 billion in deposits (2006).
However, most of the savings accounts are current
or short-term, and Viet Nam still needs to mobilize
more domestic long-term financing to reduce the
mismatch between deposits and loans in order for
banks to provide longer-term loans as demanded
among enterprises and to meet the ambitious
growth target of 40% of GDP (or US$140 billion)
from 2006 to 2011 29 .
26 IFC, Financial Sector Diagnostic, 2007.
27 Courtesy of World Bank: Taking Stock, June 2008.
28 Viet Nam Development Report 2006: Business. The estimate
of savings accounts was compiled by the World Bank based on
annual reports from banks and other sources.
29 World Bank: Financial Market Infrastructure Development Project
Information Document, November 2007.
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