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How many banks are enough for Vietnam?   2008-06-02 - VNE

How many operational banks are there in Vietnam and how many banks are enough for Vietnam? The State Bank of Vietnam has kicked off research on the issue.


Statistics show that the number of operational banks in Vietnam is small compared to developed countries. However, experts say that there are too many for an economy as small as Vietnam’s.


Experts have recently advised the State Bank of Vietnam to restructure the banking system, saying that it is necessary to reduce the number of operational banks, so that only the most capable banks exist.


The suggestion was made as a lot of rural banks have begun operating as urban banks, and a lot of applications for setting up new banks have been submitted.


Many existing banks have shown a lot of problems in liquidity and risk management.


So how many operational banks are there in Vietnam and how many banks are enough?


By May 2008, Vietnam had five state owned banks, including Vietcombank, which has just shifted to operate as a joint stock bank, six joint venture banks, 36 joint stock banks, 44 foreign bank branches, 10 finance companies, 13 finance leasing companies and 998 credit funds.


Vietnam’s banking system proves to be relatively big compared to regional countries. Thailand, for example, with 65mil people, has 30 banks, including 17 foreign owned banks. Malaysia, 24mil, has 32 banks, including 14 foreign owned banks, while Indonesia, 215mil, has 160 banks, including 29 foreign owned banks.


However, in fact, population does not decide how many banks the economies should have. Economic development is the more important factor in determining the scale of the banking system.


Singapore, for example, which has the population of 4.4mil only, now has 106 banks, including 103 foreign owned banks. In western developed countries, the numbers of banks grow in accordance with the countries’ economic development. That explains why 897 banks in France are all operating well, though the country only has 60mil people. Italy has 58mil people, but it has 787 banks, and Portugal has 10mil people, but197 banks.


The number of banks in Vietnam is expected to increase sharply in the time to come for many reasons.


Firstly, under its WTO commitments, as of April 1, 2007, Vietnam allows the establishment of 100% foreign owned banks in Vietnam.


Secondly, Vietnamese economic groups are now tending to set up their own commercial banks in an effort to diversify their business.


Since 2006, the State Bank of Vietnam has received 25 applications for setting up joint stock banks, and 33 applications for setting up foreign bank branches and 100% foreign owned entities.


By the end of May 2008, the bank had granted operation licences to two joint stock banks, Lien Viet (operational) and Tien Phong Banks, and three foreign bank branches.


The State Bank is considering other applications, seven of which have been agreed to in principle.


Nineteen economic groups had reportedly contributed capital (VND4,426bil) to setting up joint stock banks by December 31, 2007. The figures will increase when new licences are granted.


In principle, investors have the right to establish banks if they can meet the requirements set by the laws. However, banking is a conditional business. With its current economic growth, Vietnam is not quite ready to become a Singapore, France or Italy.

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