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Orientation To Improve Competitiveness Of Vietnam's Commercial Banking System In The Context Of International Economic Integration


Chapter 3

SOLUTIONS TO IMPROVE COMPETITIVENESS OF VIETNAM'S COMMERCIAL BANKING SYSTEM IN THE CONDITION OF INTERNATIONAL ECONOMIC INTEGRATION

3.1. ORIENTATION TO IMPROVE COMPETITIVENESS OF VIETNAM'S COMMERCIAL BANKING SYSTEM IN THE CONDITION OF INTERNATIONAL ECONOMIC INTEGRATION

3.1.1. Opportunities and challenges for Commercial Banks in the context of international economic integration

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3.1.1.1. Opportunity

International economic integration is an inevitable trend of the times, a necessary condition for each country to enter the common orbit of the world, an opportunity for countries to take advantage of huge capital flows along with advanced technology. Promoting integration in the banking sector will help Vietnam gradually shift its capital structure towards industrialization and modernization of the country, specifically as follows:

Orientation To Improve Competitiveness Of Vietnam's Commercial Banking System In The Context Of International Economic Integration

- WTO integration helps domestic commercial banks take advantage of external resources.

Competition is inevitable when we open the banking market, but this also has its positive effects. That is, it forces each bank to operate better and thus customers as well as the entire economy will enjoy more benefits. The restructuring of the commercial banking system will take place through mergers and acquisitions, and the result of this process will be the formation of larger banks that operate more effectively thanks to the exploitation of economies of scale. Today, when restrictions on foreign ownership in Vietnamese banks are removed as committed in the Vietnam-US Trade Agreement, foreign banks can hold more shares of domestic commercial banks and become real strategic shareholders of these banks. This helps domestic commercial banks become stronger, more competitive, and this is also the shortest way to learn and supplement the strengths of both sides.



Some transactions of transferring shares from domestic commercial banks to foreign banks have taken place and some are under negotiation. These transactions bring benefits to both parties. Foreign banks can introduce products with new utilities through the modern network of domestic partners. Domestic banks can now learn the principles and experience of professional risk management and have more capital to operate. Moreover, for domestic banks, having a number of their shares held by an international bank will significantly increase the bank's reputation in the eyes of the public and investors.

- Create a larger and more equal playing field.

Trade theories all show that the total benefits of trade liberalization are always greater than the costs of trade liberalization and that liberalization will bring opportunities for all parties to benefit when participating. This is also true for the banking industry. Trade liberalization through international integration commitments such as the Vietnam - US Trade Agreement and joining the WTO will create conditions for Vietnamese exports to access many markets and attract more FDI capital into Vietnam. When foreign direct investment and all economic activities increase, the opportunities for commercial banks to lend and mobilize capital are also greater. When the economy develops, many businesses will operate more effectively, their ability to repay debts will also increase, which will have a positive impact on banks.

The capital market in the early years of integration has developed rapidly and provided a channel for mobilizing medium and long-term capital for enterprises. Commercial banks are no longer under pressure to lend but only focus on short-term credit, personal credit, consumer credit and other non-credit products, rather than having to shoulder the role of the capital market to provide long-term capital as before.

- Create conditions for successful banking reforms.

Integration in the banking sector helps Vietnamese commercial banks have the opportunity to take advantage of capital, technology, and management experience from highly developed countries, from foreign banks with hundreds of years of operating history in the economy.



the world's market economy, thereby promoting the successful reform of Vietnamese commercial banks, moving towards a comprehensive open economy.

International integration in the banking sector creates conditions for Vietnamese commercial banks to train a team of highly qualified banking staff, meeting the tasks and requirements in working conditions in the domestic and international markets.

With international integration in banking, all incentives and protections for domestic commercial banks no longer exist. Domestic banks are treated equally with foreign bank branches, joint venture banks... This forces domestic commercial banks to operate more and more effectively.

International integration will create a driving force to promote innovation and improve the transparency of the Vietnamese banking system, meet integration requirements, and fulfill commitments to international financial institutions and trade organizations. Therefore, Vietnamese commercial banks are required to specialize more deeply in their operations, improve the efficiency of capital use, and quickly access and develop new services. Thereby, exploiting and applying more effectively the advantages of each type to expand market share in the international and regional financial markets. Vietnamese commercial banks can promote the advantage of a large branch network to access the management and business methods of foreign banks operating in Vietnam.

International integration helps to open up capital transfer channels between domestic and international markets, contributing to exploiting potential domestic capital sources. In integration, the application of diverse and modern financial and banking services will create conditions for the development of Vietnam's financial and banking market.

Integration will create fierce and equally fierce competition between domestic and foreign banks. Equal competition for development is also an opportunity. Therefore, to compete for survival and development, domestic banks have no choice but to strive to improve banking management to achieve high efficiency, reduce risks and increase customer trust. Innovation will help improve competitiveness and reduce costs.



and modernize equipment so that domestic banking service providers can compete with foreign banks.

3.1.1.2. Challenges

In the integration process, there are many opportunities but also many challenges.

Specifically:

- Competition will become more and more fierce.

Challenges due to fiercer competition and competition from more sources. That is competition between domestic banks, between domestic banks and foreign banks. Sources of competition in the market will be formed from non-bank financial institutions such as insurance, corporate bonds and other financial instruments focusing on deposit mobilization and long-term lending activities. This means that the cost of capital mobilization may increase and banks must seek new sources of capital through borrowing instruments such as credit certificates and diversified savings products depending on customer requirements.

Competition from foreign banks may vary by market segment and product type. Foreign banks have so far served only the high-end market, high-quality borrowers, large corporations with foreign direct investment transactions, and urban markets. These banks may continue to maintain these activities, but may also expand into other areas of activity to compete with domestic banks.

- International economic integration increases capital transactions and risks of the banking system, while the management mechanism is not yet complete, especially in terms of inspection and supervision, there is a lack of close coordination between relevant ministries and branches.

A big challenge for Vietnamese commercial banks is the increasing role of foreign banks thanks to their strength in capital, technology, services and global scale of operations, especially since the State Bank allowed them to mobilize Vietnamese Dong equal to 50% of their charter capital.

Experience in other countries shows that liberalization of financial services without reforming institutional regulations leads to financial crises. It can be seen that the sequence of liberalization is very important. Regulations



Domestic prudence must be established. At the macroeconomic level, as the economy and financial sector become more open and integrated into the world economy, both the economy in general and the banking and financial sector will be more susceptible to external shocks. At the banking sector, the volume of transactions increases with the increase in trade and investment, and the requirement for management capacity must also increase to keep up with the volatility of the global economy, especially in the context of the financial potential of Vietnamese commercial banks which is very thin and vulnerable. If management and legislative capacity cannot keep up with and cannot anticipate the rapid development of banking and financial transactions, the possibility is that either the banking sector will lose control leading to a crisis, or the country will have to re-impose restrictions to maintain control. Both of these cases are harmful to the development of the banking sector.

- Pressure to improve technology and techniques to meet integration requirements.

The issue of modernizing banks, because banking information technology develops very quickly and banks must continue to upgrade to compete, converting data from old software to new software is the biggest obstacle for some backward banks, especially large banks because the amount of data that needs to be converted and updated is very large. Investing in information technology to strengthen the customer information security system and technical solutions to prevent account and bank card theft is also becoming an obstacle for banks.

In a more liberalized and dynamic business environment, banks with different ownerships will face different challenges. Foreign banks, despite their excellent risk management and credit analysis techniques, cannot avoid the problem of overdue debts when the scale of lending increases after the restrictions are lifted. Among domestic banks, changing the way they manage and operate is still an issue that cannot be solved immediately.

3.1.2. Principles and viewpoints on improving the competitiveness of Vietnam's commercial banking system

In the coming time, the world economy will continue to recover but there will be many complicated and unpredictable developments. With a large economic openness, these developments



of the world economy will have a mixed impact of opportunities and challenges on our country's economy in general and the commercial banking system in particular. Domestically, with the positive results achieved in macroeconomic and monetary developments, it is a favorable condition for the Vietnamese economy to continue to persistently implement the goals of controlling inflation, stabilizing the macro economy, and moving towards sustainable development. However, our economy continues to face many difficulties and challenges, the quality of growth, productivity, efficiency, and competitiveness of the economy and the Vietnamese commercial banking system are still low, and the macro balances are not yet stable. The Socio-Economic Development Strategy for the 2011-2020 period sets out the requirement of "Sustainable economic development, maintaining macroeconomic stability, and ensuring economic security. Promote economic restructuring, transform the growth model, restructure the economy, consider quality, productivity, efficiency, and competitiveness as top priorities" . On the basis of closely following the guidelines in the Resolutions of the Party, the National Assembly, the direction of the Government, the achieved results and assessing the situation in the coming time, the State Bank has set out the general objectives in managing banking activities in the period of 2016-2020 as follows: " Effectively develop and implement monetary policies to control inflation, stabilize the value of money, contribute to stabilizing the macro economy and successfully implementing the industrialization and modernization of the country, enhancing the role of state management of currency, credit and banking. The system of credit institutions has a reasonable structure, operates safely, effectively and firmly, and has higher competitiveness in the process of international integration; "Perform well the vital role of the economy, contribute to stabilizing the macro economy, and effectively serve the sustainable development of the economy"

To achieve the above goal, the Commercial Banking system focuses on the following key tasks:

- Forming a synchronous legal framework for banking activities, including continuing to review, amend, supplement and perfect the system of legal documents to improve the effectiveness of state management in the field of currency and banking activities, ensuring synchronization with the legal system of other sectors, in accordance with international commitments and practices.



- Gradually innovate the monetary policy framework in line with international practices and the development conditions of the domestic financial market. Improve the quality and effectiveness of macroeconomic and monetary analysis and forecasting to actively support policy making and management.

- Synchronously implement solutions and policies to manage foreign exchange and gold markets in the direction of combating dollarization and gold-ization in the economy, shifting from mobilization and lending relationships to foreign currency buying and selling relationships, and moving towards eliminating dollarization in the economy.

- Strengthen the inspection and supervision of banking activities, strictly control the quality of operations of credit institutions to take strict and timely measures to handle violations and arising problems, ensure system stability and support credit institutions to develop safely and sustainably.

- Closely coordinate monetary policy with other macroeconomic policies in the economy; in policy management, implementing solutions to support economic growth must be in a direction that does not affect the inflation control target.

- Develop a system of modern credit institutions that operate safely, provide effective services, compete fairly and gradually build international competitiveness, and complete the restructuring of the credit institution system in the 2011-2015 period.

- Improve the quality and technical infrastructure of information technology and payment activities; expand forms of payment via banks and non-cash payments, perfect the legal framework for payment activities in the economy, diversify and improve the quality of payment products and services.

- Innovate training and fostering work, synchronously combine policies on human resource management to improve the capacity to perform professional tasks of staff and develop high-quality human resources in the banking industry.

- Focus on effectively implementing administrative reform, promoting information and communication work, and transparency in currency and banking activities.

3.1.3. Objectives of improving the competitiveness of Vietnam Commercial Banks

General objective to improve the competitiveness of Vietnamese commercial banks

by 2020:



- Building Vietnamese commercial banks into a multi-functional banking and financial investment group based on the application of the best international practices, maintaining a leading role in Vietnam and becoming one of the top 70 financial institutions in Asia (excluding Japan) by 2015-2020, with international scope of operations.

- Continue to innovate and comprehensively modernize all aspects of operations to catch up with regional and world levels;

- Seize opportunities, promote existing advantages of Vietnamese commercial banks, effectively expand the field of operation in both breadth and depth.

- Identifying commercial banking activities as the core and main, both developing wholesale and promoting retail, continuing to strengthen the domestic network, affirming the position of the core business of Vietnamese commercial banks, which is commercial banking activities.

- Diversify business activities by appropriately promoting banking sectors such as (consulting, brokerage, securities trading, investment fund management, etc. ), insurance services, other financial and non-financial services including real estate through joint ventures with foreign partners.

- Strengthening management and operational capacity and modernizing banking technology to improve business efficiency and capital use, having a modern organizational structure and management model, applying the best international standards and practices, ready for integration and development.

- Applying the most modern and advanced technology platform to meet the increasing needs of management as well as high quality products/utilities serving customers.

- Develop high-quality human resources through recruitment, training, placement and encouragement of talents as well as attracting brainpower from developed economic regions.

3.1.4. Orientation to improve the competitiveness of the Vietnamese Commercial Banking system in the context of integration

- Improve capacity and competitiveness by striving to increase the CAR index to 10 - 12%. Strengthen financial capacity to ensure safe operations and development, achieve a capital scale of 30 billion USD in total assets (an average increase of 15% per year) and equity capital of about 2 billion USD by 2015 and other indicators.

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