Banking in Vietnam, for many Vietnamese, is still a relatively new concept. In fact, according to the World Bank’s Global Findex Database just 56 percent of Vietnamese over the age of 15 had a bank account in 2022, with the remaining 44 percent unbanked. The same World Bank dataset also found that just 6 percent of Vietnamese had a credit card.
But that is not to say Vietnamese have an aversion to banking products. Mobile money, for example, has become extremely popular in day-to-day transactions. Around 16 percent of those surveyed said they had a mobile money account, up from 3 percent in 2017, this is in line with 96 percent of people owning a mobile phone.
This has created an interesting landscape within which banking in Vietnam is evolving and in many ways puts banking in Vietnam at the forefront of consumer banking product development. That said, the banking industry in Vietnam is among the most heavily regulated sectors. Not only that, core tenets of international banking often do not apply in this rapidly developing nation. With this in mind, it is fairly safe to say that, when it comes to banking in Vietnam, the country is carving out a unique path of its own.
This article brings together these concepts into an overview of banking in Vietnam that should provide a broad understanding of the sector and a solid framework on which individuals and organisations with an interest in Vietnam’s banking industry can build their understanding of the sector.
Vietnam’s central bank
At the heart of Vietnam’s banking system is the State Bank of Vietnam (SBV). The SBV has powers far broader than many other central banks around the world but these powers come with much more responsibility, too.
Key objectives of the SBV include:
- Keep the US dollar-Vietnamese dong exchange rate stable;
- Maintain credit growth in Vietnam’s economy of about 14 percent;
- Keep inflation below 4 percent;
To achieve these objectives the SBV also has a number of tools it can use. Chief among them are:
- Increasing or decreasing multiple interest rates;
- Increasing or decreasing credit growth limits;
- Increasing or decreasing the money supply; and
- Increasing or decreasing the base exchange rate.
Interest rates
The two key interest rates in Vietnam are the Discount Rate and the Refinancing Rate. However, the SBV has broad powers to set different interest rates for different products if it deems this is necessary. For example, in October 2022, it set different interest rates for eight different types of borrowed funds.
That said, interest rates generally go relatively untouched in normal circumstances with the SBV preferring to use other tools to manage economic growth–an interest rate rise in September 2022, was the first change in interest rates in two years.
Credit growth limits
Credit growth limits are common in emerging economies. These are used to avoid excessive lending and subsequently high inflation. On this measure, credit growth limits in Vietnam have worked relatively well with inflation around 4 percent a year since its inception. However, this has come at a cost. For example, in October of 2022 the credit growth limit for the year was reached which meant that many businesses could no longer borrow. This impacted cash flows and created a number of problems.
Note that there has been some debate as to whether the use of credit growth limits have run their course and should be done away with altogether. This has been largely rejected by the SBV, however, this suggestion does have traction in the local business community.
Exchange rates
Vietnam’s local currency, the Vietnamese dong, is currently on a managed float, sometimes called a managed peg. Essentially, each day the SBV sets an exchange rate for the dong to dollars and banks and currency traders can only trade with a certain percentage either side. That was 3 percent until October of 2022 when it was increased to 5 percent.
On a side note, Vietnam has a long and storied on-again-off-again relationship with the US Treasury’s currency manipulator watch list (See: Vietnam back on US currency manipulation monitoring list).
Money supply
Vietnam has been known to increase or decrease the money supply through the issuance of treasury bills. In September of 2023, with the value of the dong getting close to a record low, the SBV began pulling cash from the financial system by issuing short-term treasury bills. At its peak, there were around US$10 billion worth of treasury bills in circulation.
The SBV is also responsible for printing money as well if need be.
National Payment Corporation of Vietnam (NAPAS)
NAPAS is the national payment intermediary. The SBV has a majority stake in NAPAS, however, it is also partly owned by a number of other local banks. NAPAS offers a number of payment services, but it is probably most well known for facilitating instant transfers between Vietnamese bank accounts–this has become a very popular way to pay for goods with most businesses accepting instant transfer through QR codes facilitated by NAPAS.
Banking regulations in Vietnam
At the core of Vietnam’s regulatory environment for banking in Vietnam is the Law on Credit Institutions. Issued in 2010 this has become the backbone of myriad circulars, decrees, and decisions that have guided the development of the sector. Within this framework there are two key pieces of legislation that individuals with an interest in banking in Vietnam should be aware of. These are: Circular No. 41/2016/TT-NHNN pertaining to the implementation of the Basel Accords, and Decree No. 01/2004/ND-CP which addressed foreign ownership limits in the banking sector.
International banking standards
Most banks in Vietnam have been expected to meet Basel II standards since January 1, 2020, per Circular No. 41/2016/TT-NHNN with a vision to all banks complying with Basel III standards by 2025. Though there are currently no codified requirements to meet Basel III standards, many banks are already pursuing these standards of their own volition. This is largely being driven by a desire to appear more appealing to foreign lenders and investors.
Foreign ownership limits
Foreign ownership limits for banks are outlined in Decree No. 01/2004/ND-CP. This decree limits foreign ownership of a bank to:
- No more than 5 percent for a foreign individual;
- A maximum of 15 percent for foreign institutions;
- A total of 20 percent for ‘foreign strategic investors’; and
- No more than 20 percent combined in the case of multiple foreign investors.
That said, local banks can raise their foreign ownership limits with the approval of the SBV.
(A foreign strategic investor is a foreign organisation with the means to support a local bank and its development over the long term and from which a key executive is willing to sign a declaration to that effect.)
Transferring money abroad
International transfers are monitored and controlled. To move money out of Vietnam, foreign firms and individuals need to prove that the funds were legitimately earned. This is usually done with tax receipts or payslips.
Major banks in Vietnam
Vietnam’s banking sector is dominated by four state-owned banks dubbed the ‘Big Four’. These banks are the four most well-known but not necessarily the biggest.
BIDV
BIDV is currently the largest commercial bank in Vietnam by asset value. BIDV’s total assets in 2022 reached VND 2.12 quadrillion (US$87.4 billion), This was a 20.4 percent increase over 2021.
Furthermore, BIDV revenues reached VND 146,049 billion (US$6 billion) in 2022 representing a 16.2 percent increase over 2021.
BIDV is currently 80.99 percent owned by the Vietnamese state with 1.8 percent owned by domestic investors 15 percent held by Korea’s KEB Hana Bank, and the remaining 2.21 percent held by assorted foreign investors.
VietinBank
At the end of 2022, VietinBank had total assets in excess of VND 1,808,430 billion (US$74.5 billion), an increase of 18.1 percent over a year earlier.
As of April 2023, 64.46 percent of Vietinbank was owned by the Vietnamese state with 19.73 percent held by Japan’s MUFG bank. The remaining 15.81 percent was split between domestic and foreign investors.
Vietcombank
Vietcombank’s total assets reached VND 1,813,815 billion (US$74.7 billion), an increase of 28 percent over 2021. Furthermore, the company reported consolidated profit before tax of VND 37,368 billion (US$1.54 billion), 35 percent higher than in 2021.
Vietncombank frequently tops the Ho Chi Minh City Stock Exchange as the most valuable company. Its market capitalization on the exchange as of November 2023 was about US$19.8 billion. Coming in second was BIDV at less than half Vietcombank’s value, at just US$9.1 billion.
The SBV is the largest shareholder in Vietcombank owning 74.8 percent of the bank. Japan’s Mizuho Corporate Bank is the second biggest stakeholder with 15 percent of the company, and the remaining 10.2 percent is owned by a mix of domestic and foreign, organisations and individuals.
Agribank
As of December 31, 2022, Agribank reported total assets valued at VND 1.87 trillion (equivalent to US$77.2 billion), reflecting a 10.6 percent increase compared to the previous year. Furthermore, total income reached VND 159,945 billion (equivalent to US$6.6 billion), indicating a 21.7 percent increase.
Agribank commenced operations in 1988 during Vietnam’s economic reform period. It is wholly owned by the Vietnamese state.
Main banking products in Vietnam
Vietnam’s banks still operate mostly on a more traditional banking system whereby they use customer deposits to make loans. When they need more cash they raise deposit interest rates and when they are flush with cash they lower them.
Savings accounts
Savings accounts, in particular everyday accounts are becoming increasingly necessary with most businesses in key economic hubs paying their staff by direct deposits. Most everyday accounts are connected to the NAPAS system facilitating instant transfer quickly and easily. These accounts, however, are for day to day use with lower interest rates than consumer might get with other savings products.
Term deposits
As a savings and interest generating vehicle, term deposits are a popular choice in Vietnam. Terms vary and they are handled in much the same way as term deposits elsewhere in the world. Interest rates on term deposits in Vietnam have historically been quite high although that changed in 2023 as the economy began to slow down and local businesses stopped borrowing.
Loans
Only about 10 percent of respondents to the aforementioned World Bank survey, had taken out a loan from a formal financial institution in 2022. A further 18 percent of people, however, had borrowed funds from family and friends. This highlights a cultural phenomena whereby it is quite normal for Vietnamese to borrow and lend money within their community to friends and even casual acquaintances.
Credit cards
Credit cards are not particularly popular in Vietnam with just 6 percent of World Bank Findex survey respondents reportedly having one. Vietnam is still very much a cash society with most consumers buying their day-to-day goods, like fruits, vegetables, and meat from street side vendors at price points well below the need for a credit card. The aforementioned QR code transfers are also quick, easy, and free and this largely removes the need for a credit card.
Controversies
From time to time, the banking sector in Vietnam has a controversy that takes over the nation. In the past year or so, there have been two relatively big ones.
Embezzlement at Saigon Commercial Bank (SCB)
In late 2022, there was a small bank-run on SCB after it was announced that Truong My Lan, the head of Van Thinh Phat Holdings Group, a real estate conglomerate with close ties to SCB had been arrested. The bank, as a result, was put under ‘special administration’ by the SBV. Just over a year later, it was revealed that Lan was alleged to have embezzled from SCB, upwards of US$12.4 billion.
Bancassurance scam
Early in 2023, allegations surfaced that borrowers at banks had been coaxed into purchasing insurance through allegedly nefarious means. Bank customers were reportedly told they were making deposits when they were actually buying insurance policies. This was driven by bancassurance agreements that saw bank staff receive payments from insurance firms for the policies they sold. Whereas the insurance sector took the bulk of the fall the banking sector did not escape scot-free.
Banking in Vietnam moving forward
Vietnam’s banking sector has experienced huge growth since Vietnam initiated economic reforms in the 1980s. It has become a key pillar of the economy and is responsible for billions of dollars of funds each year.
Fintech has also seen exceptional growth in recent years and this will likely continue as Vietnamese consumers gravitate toward products that better suit their mobile phone dependent lifestyles.
What’s next?
Vietnam’s financial sector is changing rapidly and policy and regulations can turn on a dime. With this in mind, firms and individuals with an interest in Vietnam’s financial sector should ensure they subscribe to updates from the-shiv.