Vietnam’s Banking System Health Declining

HCMC – The State Bank of Vietnam (SBV) has unveiled a number of basic indicators of the banking sector, which show the health of the banking system had weakened by end-September, reflecting the decline of the economy.

As of September 30, the total assets of the system had fallen by 1.89% compared to end-2011. In particular, the total assets of joint stock commercial banks; joint venture and foreign banks; and financial and finance leasing companies had dropped 7%, 4.56% and 6% respectively.

The deterioration in the banking system is reflected in several indicators.

First, the capital adequacy ratio (CAR) stood at 14.11% at the end of September, versus 14.55% on April 30, when SBV published data on the banking system for the first time. CAR is a gauge of a bank’s capital safety, which must be kept at 8% as regulated in Vietnam.

Second, the ratio of short-term capital used as long-term loans had risen to 16.81%, while it was only 7.58% on April 30.

Third, the credit-to-deposit ratio had reached 90.9%, down slightly from 94.7% in late April.

Some positive changes can be seen, however, such as equity capital of the system having amounted to VND413.4 trillion, up 5.76% against end-2011.

Return on equity (ROE) had improved a lot compared to the preceding month, standing at 4.14%. However, ROE of financial and finance leasing companies had declined 1.21% against the end of 2011.

Besides, chartered capital of State-run banks had picked up 27.8% over end-2011, while joint stock banks had recorded an increase of 5.24%.

An expert said the data revealed by SBV pointed to insignificant improvements in the banking system over the past four months.

Meanwhile, another statement from the central bank shows that as of July 30, 2012, money supply, including valuable papers issued to other credit institutions in the country, had increased 6.81% against last year’s end.

A rise in money supply proves that liquidity is plentiful, putting pressure on inflation.

Outstanding balance, including outstanding loans, investment in corporate bonds and off-balance sheet trust loans stood at VND2,880 trillion at the end of July, an increase of 1.24% against late 2011.

Recently, SBV announced that as of October 19, the credit growth of the banking system had reached 2.77%, much lower than expected, although some large banks had achieved high growth rates by the end of the third quarter, like Vietcombank with a rate of 8.6%, Military Bank 10%, Ban Viet 20%, PGBank 7.9% and Sacombank 8.3%.

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