There are too many small banks operatiing in Vietnam and it is necessary to dissolve 30 percent of the banks, experts say.

No one can judge that a country has too many or too few commercial banks, if just considering the number of banks in the country. The number of banks differs in different countries, because it depends on the development of the national economies.

The problem in Vietnam is that Vietnam has many commercial banks, but many of them are small banks with very modest capital. As there are many banks, the banks have to compete fiercely with each other to exist. Especially, they have been trying to open more and more branches in an effort to lure more clients. This explains why in HCM City, there are two branches of the same bank set up in the same ward

Dr Nguyen Thanh Tuyen, President of the HCM City Economics and Finance University, believes that Vietnam still should welcome new banks, including foreign banks, which arrive in Vietnam under the country’s WTO commitments. However, it is necessary to “declare death” to small banks, about 30 percent, by allowing merge and acquisition (M&A) deals.

According to Dr Cao Cu Boi, a well known banking expert, former Lecturer of the Hanoi Economics University, there are nearly 100 operational commercial banks now in Vietnam. The banks have been joining the race of expanding their operation scale by setting up more and more branches.

Boi has pointed out that the competition in the number of branches would do more harm than good. Once banks have to set up more branches when their management capability is not good enough, they will have to try to mobilize capital immediately, which should be seen as a high risk.

Commercial banks have never before competed with each other so stiffly like now, which has resulted in the interest rate war, in which deposit interest rates have been pushed up day by day.

Currently, in order to ensure reasonable lending interest rates for businesses, the central bank has told commercial banks not to pay more than 14 percent per annum for dong deposit interest rates. However, small banks, in an effort to compete with big banks, have still been “dodging the laws”, by offering the interest rates at 17-18 percent. The “interest rate race war” has led to the sky high interest rates, which cannot be affordable by businesses.

“In HCM City, I can see the wards and streets, where there are two branches of the same banks. Is it really necessary to set up so many bank branches?” he questioned.

In fact, the State Bank of Vietnam has realized the high risk of the existence of small banks. It believes that small scale will not allow banks to compete efficiently in the new circumstances. Therefore, the central bank decided that the chartered capital of a bank must not be lower than three trillion dong. Those banks, which still did not have the required  three trillion dong in chartered capital must increase capital to the required level prior to December 31, 2010.

However, many banks had not been able to raise their capital prior to the previously set deadline. Therefore, the State Bank had to extend the deadline.

Khong Van Minh, Director of Jaccar investment fund, also thinks that Vietnam has too many small banks, which should not be seen as a good thing. According to Minh, it is the small banks, which always trigger interest rate wars, and that if Vietnam does not have suitable solutions, the interest rates would not be stabilized.

While Vietnamese big and small banks compete with each other fiercely, foreign banks have grabbed the opportunity to cement their positions in the market. With high quality services and professional management, foreign banks have attracted a lot of clients and enterprises. Minh said thanks to the high quality services, the number of clients of foreign banks has been increasing steadily, even though the banks always set stricter requirements.

Source: VnMedia