The Vietnamese banking system has been affected by the global recession, as have most other worldwide markets. The difficult economic conditions there have come to a head with the proposed merger of three small banks, all of which have significant liquidity problems. Vietnam’s Central Bank has approved the merger, meaning it should occur without undue delay.
The three banks involved are Ficombank, Vietnam Tin Nghia Bank and Saigon Commercial Bank. Together they have deposits of over VND 120 trillion (£3.6bn) and combined capital of approximately VND 10 trillion (£301m). The liquidity problems are a result of the banks focusing on short-term deposits whilst offering longer-term loans, according to State Bank of Vietnam Governor Nguyen Van Binh. The central bank entered into talks with the management of all three banks, the result of which was a mutual decision to cut costs and merge into one stronger lender.
While the government does have a stake in the newly created bank, it is not saying what is actually involved. The Bank for Investment and Development of Vietnam or BIDV, is the state-run entity that will oversee and manage the merger and transition period. Binh stated, “the new bank, after the merger, will have state participation” and this promise of stability may be what has prevented a rush on deposits. Customers and clients have reportedly responded quite calmly to news of the merger and have not pulled out their deposits en masse.
While international investors have largely ignored the Vietnamese banking system, the government’s backing of these institutions and willingness to step in to stabilise the industry is a good sign. Mark Young of Fitch’s credit rating agency said that Vietnam’s financial and banking sector is an “interesting potential growth story for international investors”. In fact, Japan’s Mizuho Financial Group recently purchased a 15 percent stake in Vietcombank, a state-owned lender.
In another interesting move, Vietnam has also begun buying up gold from its citizens. Some see this as a move to deal with increasing inflationary pressures within the country, although the government has stated that it is aimed at promoting “socio-economic development”. Governor Binh commented that part of the purpose of this scheme was also to “prevent gold speculation in the economy, stabilise gold markets and adjust domestic gold prices in accordance with the world price.” Fluctuations in the price of gold have created additional risk for those credit institutions that have participated in such speculation.
Stabilising the banking sector is hoped to have the effect of encouraging deposits, as many Vietnamese citizens view the current banking system as complicated and unwieldy. To the rest of the world, however, the sector is often viewed as outmoded and slow, unable to respond to the lightning-fast changes in markets that today’s environment requires. As foreign competition creeps in, the Vietnamese banking system will be forced to modernise or fail and it is clear that the government does not want to see it fail.
If this merger is truly the first step in overall banking reform in Vietnam, it may also be a first step in creating a stronger economy for the country.
