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The Formal Financial System of Vietnam

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The Formal Financial System of Vietnam
Vietnam Financial System:

1.0 The formal financial system of Vietnam:

The formal financial system of Vietnam consists of state-owned commercial banks, foreign banks, domestic joint-stock commercial banks, stock market, etc. Before 1989, the financial system of Viet only consisted of the State Bank of Vietnam (SBV), the central bank of Vietnam. It’s had several affiliates aimed at distributing credit to State own entities (SOEs) and other entities under directives of the central plan and handling deposits of these SOEs and entities (Ly 2003). The government later reform the system and created a two-tier banking system, the SBV had restricted it self to acting as the central bank, the control of commercial banking activities were given to the four state owned commercial banks. These banks are the Bank of Foreign Trade (Vietcombank), Industrial and Commercial Bank (Incombank), Bank for Agriculture and Rural Development (BARD), and the Bank for Investment and Development. During the 1990s, the government policies made some changes to allowed foreign banks to establish branches in the country and also the so called joint-stock commercial banks. Non-financial institutions such as finance and insurance companies have come to exist, but they were unimportant in terms of financing firms. The Vietnam stock market was only established in 2001. Vietnam has a bank-based financial system, as the banks have accounted for 85 – 90 percent of financial intermediation. Although the Vietnamese banking sector has increased, the bank credits still appear to be an unimportant source of finance because the domestic-bank-credit-to-GDP ratio in Vietnam has been low. In 2000 the ratio stood at 34.9 percent, compare to 63.6 percent in Indonesia, 63.1 per cent in the Philippines, 79.2 percent in Singapore, 100.4 percent in Malaysia, and 111.4 percent in Thailand. (Ly 2003) 1.1 State-owned commercial banks:

State owned commercial banks held 75 per cent of total bank assets.

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