VietNamNet Bridge – Vietnam is now witnessing the blossoming of commercial banks. The banking sector is now so attractive that even corporations which have been unfamiliar with money trading have also decided to jump onto the bandwagon.

Lawyer Tran Dinh Trien, Head of the Legal Department of the Vietnam Banking Association

Lawyer Tran Dinh Trien, Head of the Legal Department of the Vietnam Banking Association, talks about this.

If counting only the domestic owned banks, Vietnam has 53 banks already. Do you think that 53 banks are too many for an economy like Vietnam?

In order to answer the question, we have to know the figures about the demand in society, which will tell us how far the banking system needs to develop.

How many banks do you think would be enough for the national economy?

The question is never raised in developed countries, because they never set a limit on the number of banks.

In fact, the most important thing is not how many banks Vietnam should allow. The more important thing is the quality of the banks. Having a lot of banks but of low quality does not mean enough capital for the national economy.

You may see that Vietnam’s banks are small and have low capital, but they still want to open as many branches as possible. This is worth criticising. If banks open many branches but do not make profit with the branches, they will have to use a part of capital to inject in other business fields like real estate. This will cause bad consequences for the national economy.

The recent inspection showed that banks’ credit quality is now at a low level, especially for newly set up banks. What is your comment about the inspection results?

The newly set up banks have to face a lot of difficulties. They have to compete with more experienced banks, they have to pay a lot for headquarters and staff salaries. Sometimes, they ignore safety regulations in doing business. That is why they have high bad debt ratios. And again, we can ask if the central bank should allow small banks to be established.

There are still more and more applications for setting up new banks. What would you say about the tendency?

In principle, economic groups and general corporations have the right to establish their own banks. However, it is necessary to consider thoroughly when licencing these banks in the current conditions.

I personally think that we should not allow the massive establishment of banks belonging to economic groups and general corporations at this moment. New banks will have to compete fiercely with other banks already existing in the market, and if they have difficulties, this will burden the state and society.

Instead of establishing new banks, Vietnam should pay attention to raising chartered capital, improving management skills and banking technology, raising the competitiveness and expanding the network to rural areas.

Just go along Lang Ha street and you will see eight bank branches there. Banks now try to open more branches in big cities and urban areas, while they cannot meet the demand of providing banking services in rural areas.

But I think that seeking profit is what commercial banks are aiming at. They cannot think of setting up branches in rural areas. This task must be implemented by the bank serving social purposes.

It is true that banks have to pay more for loan management work in rural areas. In big cities, a bank can give a loan worth VND10bil to a business, but in rural areas, each loan is worth VND5-10mil only. That explains why banks do not want to set up branches in rural areas, and the plan to assist rural areas to catch up with urban areas remains on paper.

I think that Vietnam should not allow the opening of more branches in cities, but should encourage branches and credit funds in rural areas.

In Vietnam, the state never lets banks go bankrupt due to many reasons. Therefore, I think that it is necessary to limit the number of new banks.

(Source: DTCK)