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Banking in Vietnam

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Institutions in Transition

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Abstract

The banking system has since 1988 undergone several phases of reorganization aiming to create a two-tier system. Vietnamese banking in the early 1990s was still in an embryonic state. The system remained dominated by the four so called state-owned commercial banks (of which two are former departments of the State Bank), and were mainly the concern for the relatively small state sector. Bank services were associated with a tedious bureaucratic hassle, the general confidence in banks was low, and banks were of little importance to the ordinary citizen.1

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Notes

  1. World Bank (1995b) reports on financial sector development in the 1989-1994 period. This strongly policy oriented evaluation provides useful information on the organizational structure, techniques and performance of the banking system.

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  2. Vietnam Investment Review, October 7, 1991.

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  3. Ronnås (1992), pp. 153 and 110. Truong & Gates (1992) discuss investments in the private sector.

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  4. Head office of ABV, January 3, 1992.

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  5. Le Van Toan (1993), p. 34.

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  6. de Vylder & Fforde (1995), p. 214.

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  7. World Bank (1993), p.8.

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  8. Riedel (1993), p.408.

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  9. Dollar (1994), p. 367.

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  10. Don Ton That (1993), p. 43. 11 See Pitron & Eck (1993) for details.

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  11. Only some 20 percent of some 18 billion US dollars of FDI licenced had been disbursed by 1995; Kokko & Zejan (1996), pp. 46-47; see also Dollar & Ljunggren (1995).

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  12. World Bank(1993), p.8.

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  13. This is based on a low estimate of GDP, however (see Andersen, 1994, p. 8).

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  14. “International donors confirmed Vietnam’s return to the world financial community in Paris on 10 November by pledging US$1.86 billion in aid for next year and by praising Hanoi’s “remarkable” success in moving towards a market economy”. Far Eastern Economic Review, November 25, 1993.

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  15. Andersen (1994), pp. 6-8.

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  16. Dollar (1994), p. 375.

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  18. Dollar (1994), p. 364.

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  19. For example in World Bank (1993), pp. 7-8.

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  20. See discussion by Le Van Toan (1993), p. 24 on the sources of the rising incomes in rural and urban areas and their use.

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  21. Department of banking at the NEU in Hanoi, November 14,1991.

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  22. See for example Far Eastern Economics Review, August 25, 1994; the same figure was mentioned in interviews with foreign bankers already in late 1991. Far Eastern Economic Review, September 2, 1993, mentions gold and hard currency to a value of one billion US dollars hoarded in the population.

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  23. Department of finance at the NEU in Hanoi, October 19, 1991.

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  24. Nguyen Quang Thai (1992), and personal communication in November 1992.

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  25. In Chapter V it is shown that household saving in 1991 roughly amounted to some 3,000 bn VND in 1991 (Table 6.4, only counting the ABV and ICBV saving from the population).

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  26. Ronnås (1992), pp. 56 and 69.

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  27. See Dollar (1993), pp. 212-214.

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  28. Fforde (1994), pp. 57 and 58.

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  29. Vo Van Kiet (1995), p. 17.

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  30. See World Bank (1989), Chapter 2, for a discussion on financial depth.

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  31. See, for example, Far Eastern Economic Review, 24 October 1996, pp.49-50.

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  32. World Bank (1989), pp. 27-31.

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  33. Based on Table 4.1.

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  34. While contemplating these comparisons between Vietnam and other countries, one should bear in mind the problems with assessing GDP in Vietnam. On the basis of an average exchange rate to the dollar of 11,000 Vietnamese dong for 1992, the GDP given in Table 4.1 implies a per capita GDP of about 143 US dollars. This is significantly less than the around 200-220 US dollars per capita often reported to be a more accurate figure. With a GDP of 200 US dollars per capita, GDP for 1992 would be about 154,000 bn Vietnamese dong. M2 as a share of GDP would then only be 17.6 per cent. But then again, the figures of the money supply are equally incomplete: apart from the probably very significant US dollar cash supply, substantial financial activities take place outside the formal system, which the SBV is not able to include in their survey (for one thing some of the officials would not agree that these “illegal” financial flows should even be considered in the official figures).

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  35. In late 1992, I happened to hear of an argument in a central bank department responsible for collecting and compiling financial data on the banking system. A bank official wanted to exclude the share-holding banks when surveying the banking system, arguing that “they” (i.e. the share-holding banks) “are not ours” (i.e. belonging to the state bank) so “we should not care about them”, according to my informant.

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  36. World Bank (1989), p. 39. Developed markets are Australia, Canada, France, Germany, Japan, Sweden, the United Kingdom, and the United States. Emerging markets: Argentina, Brazil, Chile, India, Korea, Malaysia, Nigeria, Pakistan, Philippines, Portugal, Thailand, Turkey, Venezuela. The year is 1985, and the figures are based on IMF financial statistics and World Bank data.

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  37. Note that due to the income effect, the net effect on total savings of increases in the interest rate is in general ambiguous. However, higher interest rates would in any case cause a portfolio effect: i.e. people would rather deposit their money in the banks than keep other types of inflation hedges.

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  38. See Nguyen Duc Thao & Pham Dinh Thuong (1994), p. 17 on the experimental banking in Hanoi, Ho Chi Minh City, Hai Phong and Da Nang.

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  39. Council of Ministers, Decision no 53/HDBT, March 26,1988.

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  40. Decree law on the State Bank of Vietnam (Decision no 37, May 1990), and Decree law on banks, credit cooperatives and finance companies (Decision no 37, May, 1990).

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  41. Council of Ministers, Decree no 189/HDBT, June 15, 1991.

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  42. See Ministry of Trade (1993), and Nguyen Duc Thao & Pham Dinh Thuong (1994) for detailed accounts of the various regulations.

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  43. Interviews in Hanoi, November 1997.

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  44. Along with the reorganization of the government in 1992 a Council of Monetary Policy was formed — reporting directly to the prime minister and in charge of all financial matters; this council was however dissolved in 1994, according to Fforde (1994), p. 66.

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  45. The vice-ministers representing the Ministry of Finance, Ministry of Trade, State Committee for Planning, and State Committee for Cooperation and Investment respectively.

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  46. Decree law on the State Bank of Vietnam (Decision no 37, May 23, 1990), Chapter II, Article 5.

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  47. Apart from the Governor’s Office, these include departments of Supervision, Economic Planning (or “Economic Research”, the main policy department), Credit, Commercial Banks and Credit Institutions, Personnel and Training, Accounting and Auditing, Foreign (for international policy), Foreign Exchange, Administration, Information (publishing the Banking Review), and a Computer Department. The number of departments according to decision no 138 — HDBT, May 8, 1990 is 12 (including the Governor’s Office and the Banking Review). The organizational chart in Nguyen Duc Thao & Pham Dinh Thuong (1994) consists of 14 departments of which several have somewhat different names than in the decision — there is for example a “logistics department” which is most probably the “administration department”. Notably there is a credit department and a treasury department, whereas the Council of Ministers’ decision only mentions a cash department. This is not important other than as an illustration of the difficulties in penetrating the organization and understanding the structure. The annual report of 1996 reports yet a different number of departments. However, the existence of this report is a sign of increased openness in the system.

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  48. “We are divorced but still live together”, as one SBV interpreter put it in November 1991.

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  49. Several bankers made the analogy in interviews during 1991, presumably implying that adopted children could expect less attention and care.

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  50. The term share-holding bank will be used interchangeably with joint-stock bank.

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  51. The BIDV was previously called the Bank for Investment and Construction, but its name changed in 1990.

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  52. The existence of the Savings Bank is somewhat unclear. It is mentioned by de Vylder and Fforde (1988), but is never dealt with at any length. World Bank (1993) denies any existence of a separate savings bank. The Area Handbook of Vietnam (1967) claims that there was a number of small savings banks in North Vietnam, something which Vietnamese observers seem to confirm by explaining that there used to be savings funds, where people were encouraged to deposits their money for ideological reasons.

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  53. Head office of ABV, December 11, 1993.

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  54. Decree law on banks, credit cooperatives and finance companies (Decision no 37, May, 1990), Chapter I, Paragraph 2.

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  55. BIDV Annual Report, 1992.

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  56. In 1991 there were 401 technical engineers out of a total of 1,175 graduates (BIDV brochure, 1991).

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  57. Dao Hung & Nguyen Huu Tai (1993), p. 9. 60Eximbank in Ho Chi Minn City, December 19, 1991.

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  58. Saigon Bank for Industry and Trade in Ho Chi Minh City, December 18, 1991, and December 3, 1993.

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  59. Danang National Bank in Danang, December 4, 1991.

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  60. Maritime Bank in Haiphong, November 11, 1993, in Hanoi, December 1, 1992, in Ho Chi Minh City, December 3, 1992, and in Haiphong, November 11,1997. Maritime Bank, Annual Report (1993).

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  61. Dao Hung & Nguyen Huu Tai (1993).

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  62. See discussion in McCarty (1994), p. 30, and World Bank (1991), p.55, Dao Hung & Nguyen Huu Tai (1993), Nguyen Duc Thao & Pham Dinh Thuong (1994), and World Bank (1995b), pp. 79-85. The World Bank (1993) does not mention these banks in their account of the financial market. On the other hand this account is rhapsodic. Ministry of Trade (1993), pp 124-134, mentions these “construction” or “housing” banks in an (incomplete) list of banks in Vienam. Nguyen Con Nghiep et.al. (1993) mentions house construction banks among different types of share-holding banks.

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  63. Seibel (1992), p. 65.

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  64. CIEM in Hanoi, October 22 and 29,1991.

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  65. World Bank (1995b), pp. 69-71. See further Tran Van Anh et. al. (1992), Dao Hung & Nguyen Huu Tai (1993), and World Bank (1995b), pp 61-75.

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  66. See also de Vylder 1990, Far Eastern Economic Review, November 1,1990, and World Bank (1991), p. 79. Thayer (1991) mentions political demonstrations following credit collapse (p. 32).

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  67. Finance department of the Economics University in Ho Chi Minh City, March, 1991. 71Urban Credit Cooperative 1 in Ho Chi Minh City, December 16, 1991.

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  68. Another urban credit cooperative visited in Ho Chi Minh City was in the process of such a transformation together with yet another cooperative.

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  69. Decree law 38 (1990), Chapter 1, Article 1. 74Council of Ministers, Decree no 189, September 1991.

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  70. World Bank (1995b), p. 9.

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  71. The application fee was 0.2% of chartered capital, altogether some USD 300,000 if ten banks were applying. The original drafting of the regulation, stipulated the double capital requirement, according to Vietnam Investment Review, October 7, 1991.

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  72. See Far Eastern Economic Review, August 29, 1991.

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  73. A private gold shop owner said that the deposit was 112.5 grams (or 30 chi, where one chi is 3.75 grams).

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  74. SBV official in Hanoi, October 22 and 25, 1991.

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  75. Nguyen Duc Thao & Pham Dinh Thuong (1994), p. 43.

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  76. SBV official in Danang, December 2, 1991.1 asked around whether the private gold shops also lent money. Almost nobody claimed that they had ever heard of that.

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  77. State-owned gold shop in Hanoi, November 20, 1991.

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  78. SBV official in Ho Chi Minh City, December 13, 1991.

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  79. Maritime Bank Annual Report (1993). Among the ICBV’s sub-branches in Ho Chi Minh City, there was also a “gold union”, according to ICBV in Ho Chi Minh City, December 11, 1991. The ABV Annual Report (1992) mentions that 310 provincial and district branches deal with gold, silver, precious stones, and pawnbroking, of which 139 are gold, silver and precious stones shops.

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  80. State-owned gold shop in Hanoi, November 20, 1991.

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  81. Seibel (1992),p. 73.

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  82. Ronnås (1992), pp. 121-122.

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  83. Interviews in Ho Chi Minn City, and Hanoi in 1991; see also Far Eastern Economic Review, March 4, 1993.

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  84. McCarty (1994), p.33.

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  85. Young Age Magazine, Ho Chi Minh City, autumn 1991.

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  86. Document from the Market and Price Institute, Hanoi, 1992.

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  87. Ronnås (1992), p. 56 and p. 69. 93Tran Van Ann et.al. (1992) p. 26.

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  88. CIEM in Hanoi, October 22 and 29, 1991. 95Institute of Economics in Hanoi, November 16, 1991.

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  89. Seibel (1992) p.72.

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  90. Tran Van Anh et.al. (1992), pp. 10 and 26.

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  91. Tran Van Anh et.al. (1992), p. 26.

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  92. See also Far Eastern Economic Review, September 2, 1992 on collapsing huis.

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  93. Apart from one of the deputy governors, I met with people at the Monetary and Credit Institute, the Economic Planning Department, the Financial Institutions Department, the Foreign Department, the Credit Department, and the Policies Division of the Economic Research Department.

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  94. I met with the head-offices of all the banks, their branches in Hanoi, Danang and Ho Chi Minh City, and also with one of the banks in Haiphong. On some occasions I met with managers of the department for foreign business relations — in particular in the banks visited in Ho Chi Minh City. At the head offices of the banks I interviewed the deputy directors.

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  95. Among Vietnamese observers I met in Hanoi with people at research departments of the Central Institute of Economic Management (CIEM), the State Planning Committee (SPC), the Institute of Economics, the Institute of Market and Price, the National Economics University (NEU), and the Ministry of Finance. In Ho Chi Minh City I visited the Economics University, the Finance and Accounting College and the Banking College. I talked with people in the two joint-venture banks Indovina and VID Public Bank, and with bankers in BNP, Credit Lyonnais, and Standard Chartered Bank.

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  96. Department of Banking at the NEU in Hanoi, November 14, 1991.

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  1. Stockholm School of Economics, Sweden

    Lisa Román

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© 1999 Springer Science+Business Media New York

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Román, L. (1999). Banking in Vietnam. In: Institutions in Transition. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-4981-9_4

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  • DOI: https://doi.org/10.1007/978-1-4615-4981-9_4

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