effective. The Government has determined that in 2020, industry and services must account for approximately 85% of the total GDP. For the industry sector alone, the Government also hopes that high-tech industry will have a value ratio of about 45%, and manufacturing technology will account for 40% in terms of product value in the total production value. In addition, agriculture must still be one of the main sectors, with an estimated number of workers participating in this sector of 30% of the total social workforce.
Third, total productivity . Increasing productivity can help reduce the average energy consumed in the production process. By 2020, productivity participation in growth of at least 35% will help reduce energy consumed per GDP by about 2.5-3% annually.
Finally, infrastructure . Building a synchronous and modern infrastructure is a goal that the Vietnamese Government is aiming for in 2020 to help increase the urbanization rate and the number of communes meeting new rural standards (at 40% and 50% respectively). However, the speed of infrastructure development in Vietnam is developing strongly, so by June 2019, the total number of communes meeting new rural standards was at 50.1% (exceeding 0.1% 18 months earlier than forecast).
Table 3.1: Summary of some development strategies of the Government
Target
Forecast data period 2016-2020 | Forecast data period 2020-2030 | |
Average GDP growth rate/year | 7%-8% | 5%-6% |
GDP per capita | 3,000-3,200 USD | 4,500 USD |
Industry and services ratio/total GDP | 85% | 89.5% |
Number of workers in agriculture/total society | 30% | 25% |
Labor productivity | ≥35% | ≥40% |
Urbanization growth rate | 40% | 50% |
Rate of communes meeting new rural standards | 50% | 80% |
Growth rate of development investment capital | 10%-12% | 14%-15% |
Credit growth rate | 13%-15% | 16-17% |
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Source: Author's synthesis
3.1.1.3. Opportunity
First, the opportunity for economic growth and inflation control.
2014 was a year of successful transformation for Vietnam after 3 years of being heavily affected by the global financial crisis (since 2011) when it exceeded the set plans. In this year, export turnover to the US increased sharply at 17%-18%. Some trade agreements such as: Vietnam-Korea free trade agreement, Vietnam-Customs Union of Russia-Belarus-Kazakhstan free trade agreement, Vietnam-EU free trade agreement will soon be implemented, bringing many opportunities for economic growth for Vietnam in the period 2015-2020.
In addition, in these years, Vietnam has succeeded in controlling inflation, bringing inflation to a single digit, even at the lowest level in the past 10 years. The low inflation rate has created the premise for businesses to recover, the economic restructuring process has improved, as well as the business environment has improved. In that context, the demand for credit has increased sharply. Commercial banks have promoted their role in providing credit to the economy on a larger scale, providing banking services has also become more convenient and easier. As a result, commercial banks can earn greater profits, increasing their business efficiency in the coming period.
Second, the financial strength of the banking system is gradually improving.
The Government and the State Bank of Vietnam have issued many drastic measures to increase the financial strength of the banking system in the context of opening the market and restoring the economy after the global financial crisis. The measures have been used flexibly and reasonably, especially the monetary policies of the State Bank, which have increased the market management factor and the safety of the entire credit system. The State Bank has put forward its own plans to achieve financial capacity standards as required by the region and the world. The handling of bad debts and the operation of VAMC are still being carried out by the State. At the same time, M&A activities and interest rate reduction will continue to receive the State's attention, thereby creating favorable conditions for commercial banks to increase their business efficiency.
Third, the development of science and technology.
The 4.0 industrial revolution has opened the era of high-tech services and products, of digital electronics. Science and technology are the key to success in increasing competition between banks with domestic, regional and international competitors. Applying science and technology in artificial intelligence (QI) management and in the transaction process, automating business processes. Science and technology will effectively support banks in expanding distribution channels, supply scale, and increasing business efficiency.
Fourth, improve professional qualifications.
International integration has created opportunities for domestic banks to approach banks and credit institutions from foreign countries, developed countries with advanced management capacity. The integration process also helps banks receive specialized advice and training on new skills, knowledge and operations. This helps domestic banks increase the management, technical and professional skills of their employees.
3.1.1.4. Challenges
To achieve the above economic goals for the 2016-2020 period, commercial banks will have to face many challenges from their own influencing factors.
The first challenge is about competitive advantage.
In the context of opening up, foreign banks and credit institutions with strong financial potential from other countries entering Vietnam have increased in large numbers. These commercial banks and credit institutions have advantages in large capital scale, management level, and science and technology. Competing with such strong competitors puts domestic commercial banks in Vietnam at a disadvantage. To minimize the competitive disadvantage of the Vietnamese commercial banking system, it is necessary to gradually create competitive adaptability for commercial banks. To increase the adaptability and competitiveness of domestic commercial banks, Vietnam needs to build a roadmap to gradually loosen regulations for foreign financial institutions, in coordination with gradually strengthening the role of domestic commercial banks nationwide. Liberalization in the financial sector can also encourage domestic commercial banks to increase their own
Their capabilities create the foundation for them to compete with regional and international rivals.
Besides, risks in the operation of the banking system increase when the market opens.
The banking system is now not only subject to domestic risks, but also potential risks from outside. To avoid and minimize the impacts of these risks, Vietnam needs to build a stable monetary market, with reasonable monetary policies through the effective use of policy tools. Along with that, regional and world markets sometimes fluctuate, creating economic shocks as well as financial impacts, so it is necessary to build a policy to manage and ensure that the banking system can predict and withstand these shocks.
In addition, Vietnamese commercial banks are mainly small and medium sized banks.
Although there has been a huge change in the capital scale of Vietnamese commercial banks in recent times, when compared with other banks in the region and the world, large commercial banks in Vietnam only meet the criteria of a small and medium-sized bank. Some commercial banks have been very successful in establishing their branches in other countries, but they are still very limited. By the end of 2015, Vietnam did not have a single commercial bank with a regional or global scope of operations. Thus, in terms of influence, commercial banks are completely disadvantaged in terms of scale and financial capacity compared to their competitors.
On the other hand, the current Vietnamese commercial banking sector, although diversified in structure in terms of both ownership and type of operation, has uneven development.
By the end of 2015, the capital mobilization ratio of state-owned commercial banks was only 45.5% of the total banking sector, but the investment ratio for the economy accounted for 49.1%, while the investment ratio for the economy of other credit institutions was only 47.3% with a mobilized capital ratio of 53.7%. Although the capital mobilization ratio of state-owned commercial banks was lower than that of other credit institutions, comparing the number of commercial banks, we can see the difference in the capital mobilization process of state-owned commercial banks compared to non-state-owned commercial banks. This also shows that, in the system
Vietnamese commercial banks currently have joint stock commercial banks with very large capital scale, strong financial capacity with market share mainly existing in parallel with very small joint stock commercial banks. The consequence is that the competitiveness between domestic commercial banks is not commensurate with each other, in other words, the gap in financial capacity of joint stock commercial banks is very large. Joint stock commercial banks will face difficulties in the competition process, the ability to maintain financial stability for a long time is very low. These small joint stock commercial banks can cause potential risks to the safety of the entire commercial banking system in the future. From here, the Vietnamese commercial banking system needs to set certain standards in the formation and business operations of commercial banks to ensure the sustainability of the entire system.
Another challenge that commercial banks face is the internal problems of the bank, such as: products and services provided, loan quality, inspection and supervision system, and human resources.
In terms of products and services, the provision of these banking products and services to the economy is still facing difficulties . Since Vietnamese commercial banks are mainly small and medium-sized commercial banks, it is easy to see that the scope of operations of commercial banks is limited, mainly concentrated in large provinces and cities of the country. Only a few large-scale joint stock commercial banks have branches and ATMs in 63 provinces and cities of the country (for example, BIDV, Techcombank, Agribank, Vietinbank, ...). Thus, private customers and businesses in mountainous provinces, remote areas have very little access to the products and services of the banking system.
In addition, the management capacity of Vietnam in general and of the banking system in particular is still very weak , leading to huge risks in operations and in the market.
These risks are reflected through the low quality of loans both in the past and in new loans, leading to an increase in bad debts for the banking system. The financial reports of commercial banks have not yet met international standards of accuracy and transparency, making it difficult to determine and assess the health of commercial banks.
Besides that is the quality of human resources.
The quality of human resources has been proactively improved by commercial banks in the previous period through improving recruitment as well as forming training and development courses for bank employees. However, some training programs have not yet met the requirements of reality. The issue of professional ethics of employees is also a big challenge for commercial banks in the process of operation, especially in Vietnam, there have been some typical examples of this problem and caused very serious losses not only for the commercial banks themselves, but also for customers and the country's economy.
Finally, the challenge that commercial banks face comes from the imperfection of the financial market.
The Vietnamese financial market is not yet complete in terms of both legal environment and infrastructure. An incompletely developed market will find it difficult to create the premise and conditions for the banking sector to develop stably. In addition, the competition from commercial banks from long-developed financial markets will increase the pressure on domestic commercial banks.
3.1.1.5. Orientation and strategy for banking industry development to 2025 and 2030
* Target
The development goals of the Vietnamese banking system until 2025 are set for each specific subject of the system.
First, the development goals of the State Bank of Vietnam.
As the entity implementing State management of currency, credit and banking, in order for the commercial banking system to develop, the State Bank of Vietnam must be a pioneer. The State Bank of Vietnam must build and develop a professional team, with adequate resources and capacity to build and implement monetary policies in the most effective way. The State Bank of Vietnam also needs to make progress to achieve international standards for central bank operations, thereby integrating with the community in the region and the world. Thus, by 2025, the State Bank of Vietnam will strive to become a modern central bank with a level of progress like other central banks.
other in the region and in the world. Accordingly, the State Bank of Vietnam will aim to build a banking model with a reasonable organization and a synchronous, effective and efficient operating mechanism to be suitable for the country's socialist-oriented market mechanism. In addition, the State Bank also aims to fully meet its legal status and accountability.
The State Bank will always go hand in hand with the country's goals, from macro goals: the goal of controlling inflation, stabilizing the macro economy, promoting sustainable growth; to micro goals for ensuring the safety and soundness of the credit institution system. Thereby, the State Bank of Vietnam will aim to play a key role in ensuring financial stability, while being able to perform its supervisory role in the payment system, being the payment and settlement center for payment systems and financial and monetary transaction systems in the economy.
On the other hand, when the State Bank of Vietnam is proactive in using policy tools to ensure the most effective implementation of its monetary policy, it will create trust from the people. The State Bank of Vietnam needs to have an overview to liberalize the financial market in a prudent and reasonable manner. And, the State Bank needs to properly perform the banking function of banks by increasing its inspection and supervision capacity with its subordinate commercial banks, thereby contributing to ensuring the safety of the commercial banking system.
Second, the development goals of credit institutions (especially domestic commercial banks).
The immediate goal in the development of commercial banks is to improve their competitiveness, management capacity (including corporate governance and risk management), and financial capacity to achieve an average level of development, comparable to developed commercial banks in the region and the world. In the process of achieving this goal, commercial banks need to set a complementary goal of innovating their business operations in terms of scale, structure, and type. Commercial banks strive to expand their scope of operations nationwide, and from there create a solid enough stepping stone to advance to the regional and world scope. Continue to restructure the commercial banking system, handle bad debts through VAMC or through M&A; continue to increase the equity capital of commercial banks. However, at some points, the merger
or selling debt to VAMC does not bring out the maximum efficiency, the Vietnamese commercial banking system to ensure the safety and efficiency in the operation of commercial banks in the long term, it is necessary to establish a number of large financial groups as pillars. The remaining commercial banks themselves must also achieve the standards and norms set by the region and the world.
Because the number of commercial banks in Vietnam is quite large, leaning towards small-scale commercial banks with high potential risks, in order to improve the competitiveness of domestic commercial banks, restructuring the commercial banking system is very necessary. At the same time, the State needs to introduce policies and reasonable credit conditions to help businesses (especially SMEs) conveniently access capital sources of commercial banks, conveniently access banking products and services, thereby making it easier to expand the distribution network of banks. However, it must be emphasized that in order to increase the use of banking products and services by customers and businesses, commercial banks themselves need to improve the quality of their products and services, and diversify their products and services to be able to meet the maximum needs of the economy. One of the goals contributing to diversifying products and services, as well as rapidly improving product quality, is that the State has issued policies to develop a system of non-bank organizations - those who compete directly with commercial banks in providing banking services and products (such as capital mobilization, credit granting or payment, etc.).
During operation, commercial banks need to increase financial capacity, reduce bad debt and increase stability in operations.
* Orientation and strategy for banking sector development to 2025 and 2030
Regarding the banking sector, the Prime Minister has issued a number of decisions on the development of Vietnam's banking sector until 2020. Specifically, the development of Vietnam's banking sector until 2010 and orientation to 2020 according to Decision No. 112/2006/QD-TTg towards safety - efficiency - sustainable development - international integration, continues to be inherited and developed in Decision No. 175/QD-TTg dated January 27, 2011 with the content of stable and sustainable development of the banking system.