All respondents claim their banks have coping strategy for foreign competition and for new rules of the game when Vietnam accedes the WTO and integrates into the world economy. Challenges of BIDV can be identified as how to innovate and develop new products; how to increase the banking financial capacity. In 2004, more than 80 percent of the profit amount of BIDV came from the credit operation and outstanding loans accounting for about 75 percent of BIDV asset (source: BIDV 2004 financial report), credit operation takes the most important part on BIDV banking activities.
Keeping a stable outstanding loan and high quality credit operation does not only help BIDV increase profit but also prevent risk. However, in September 2005, after applying international accounting standard on credit operation, the ratio of bad debt has increased from under 5 percent to 9 percent and the rate of bad debt is about 20 percent against total outstanding loans. While the credit margin is only 1. 4% compared with this of 3. 5% suggested by the International finance organizations (source:http://www.
mof. gov. vn/DefaultE. aspx? tabid=616&ItemID=26781 and BIDV credit operation report, August 2005).
Many SOEs, the client customers of BIDV are facing on difficulties with bad performance. BIDV credit appraisal is not good enough to identify bad loans. Some profitable SOEs tend to prefer to borrow from foreign banks because of the better banking service. In recently, BIDV has tried to lend to individuals and private enterprises, but the result is limit access. BIDV should improve its current credit quality and access new credit market by developing new credit products, innovate the management mechanism and banking supervision and modifying credit procedure.
Banking service, based on electronic and modern technology, takes the important role on modern banking activity. Development the banking service is the need job of BIDV on the integration process. While global financial organizations today can offer many different financial products, the main banking services of BIDV are deposit and money transfer among BIDV branches. Banking services in BIDV are still of low quality, inconvenient and certainly not diverse.
The linkage between banking services and supporting policies as well as coordination between service providers and banks in offering package services is lacking. In 2004, the profit from banking service accounted for only 20 percent (source: BIDV annual report, 2004). Meanwhile, changes in demographics, living standards, political force, technology culture, lifestyle and fashion create new needs. It is clear that the products offered by BIDV do not meet the needs of a certain proportion of the population and that product development aimed at satisfying these needs could open a potential profitable growth area.
In recently, BIDV has installed the new modern banking technology and been offering some new services such as debit card, but those services always have errors and less competitive. Capital serves as a basis for calculating certain key prudent ratios applicable to banking operations. The capital requirements for banks are based on international standards laid down by the Basel Committee on Banking Supervision (BCBS) – a group of industrially advanced contries (G-10) committee that meets regularly at the Bank for International Settlements in Basel.
Measured mainly by the ratio of capital adequacy (CAR); it is the rate of the legal capital over total risk asset. The minimum CAR laid down in the Banking Ordinance, is 8 percent. Furthermore, according to the commitment of Vietnam Government with IMF as well as on the proposal to be the member of WTO, all Vietnamese banks have to reach the capital adequacy rate of 8 per cent in 2008. With low operation efficiency and the limited fund from Budget State, in order to increase its capital adequacy rate, BIDV seems to have to reduce its asset by reducing its outstanding loan and market share.
Beside these two challenges, BIDV is facing many others. But these two challenges can be considered as the key ones. These challenges limit the BIDV operation and affect directly its competitive capacity. Meanwhile, the integration process not only forces banks to adopt market principles and become more transparent but also paces for foreign banks, the more stronger competitors, with more cutting edge, better technology, and business management skills compared to Vietnamese banks to enter the Vietnam market.
According to the current survey, the State-run banks market share will drop to 40-55 per cent following economic integration. The survey also showed that while almost all banks appreciated the benefits of integration, SOCBs were nervous about losing clientele because of market share reduction attributable to foreign banking competition. BIDV should overcome quickly these challenges before year 2010, when Vietnam banking market fully integrates. (Source: http://www. mof. gov. vn/DefaultE. aspx? tabid=616&ItemID=26781)
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