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After joining the CPTPP, what are the opportunities and challenges of the banking industry in Vietnam? (part II)

After joining the CPTPP, what are the opportunities and challenges of the banking industry in Vietnam? (part II)

Saturday 20, 06 2020
Besides the great benefits, what difficulties will the CPTPP agreement make the banking industry in Vietnam face?
  • Challenges

With a series of unprecedented ventilation mechanisms as analyzed in Part I, the CPTPP will pose many challenges to the Vietnamese banking system:

+ Faced with fierce competition from banks of CPTPP member countries

Some countries participating in CPTPP such as Japan, Australia, New Zealand, and Singapore have very developed banking and financial markets and many large financial institutions. When foreign banks, especially large banks of these developed countries, are more convenient in providing their financial products and services in Vietnam (even if they are not open branches in Vietnam), the battle for market share between domestic banks and foreign banks will become more and more fierce. This creates pressure for domestic banks to reform, change and improve their competitiveness if they do not want to "lose at home", not to mention reaching out to the international market. This is both an opportunity and a challenge for Vietnamese banks.
 
If Vietnamese banks fail to reform, they are likely to lose market share, have to downsize or be annexed or merged by foreign banks. While Vietnamese commercial banks are restructuring, banks of CPTPP member countries with better capital and governance scale have been able to take advantage of this opportunity to expand the domestic market. In contrast, the likelihood of domestic banks having sufficient capacity to access the market of CPTPP member countries, especially developed countries, is not high. Although Vietnam currently has many banks operating, there is still no real bank that is strong enough to be of international stature.

+ “Brain drain”

Long-term workers with high qualifications, good foreign languages ​​can leave domestic banks to switch to work for foreign banks, where their income and remuneration are more commensurate. "Internal gray matter" can flow into foreign banks. The trend of moving high-quality banking and financial human resources to foreign organizations is inevitable. Attracting talented people is difficult, retaining talents to serve the operation of the organization is even more difficult. Therefore, retaining talented bankers continues to devote to local banks is one of the major challenges of the Vietnamese banking system.
 
Along with the challenge of brain drain is the risk that Vietnamese people have to work as hired laborers for foreigners right in their homeland. Currently, banking M&A activities in Vietnam are mainly merged between domestic banks. However, when the M&A wave of financial institutions of CPTPP member countries on domestic banks appears, Vietnamese bank employees will become hired employees for these organizations.

+ Financial system risks

It can be said that CPTPP is a long step in the process of the international economic integration of Vietnam. In this process, our country's banking and financial system will face many risks before the constant fluctuations of both domestic and international macroeconomics. The 2008 global financial crisis is a lesson in the risks that the Vietnamese financial system may face when it becomes more deeply integrated into the world financial markets. Any event happening to one of the financial markets of CPTPP member countries can quickly spread to Vietnam's banking and financial system.
 
In addition to the benefits that international capital flows bring to Vietnam's banking system, this massive increase in foreign capital flows also contains risks such as asset price bubbles and sudden capital withdrawal. When foreign capital inflows are suddenly withdrawn on a large scale, the Vietnamese financial and banking system will suffer. On the other hand, large capital inflows can be overinvested in real estate. Consequently, the real estate bubble will come, the credit quality of banks will decline and bad debts will increase. In turn, rising bad debts and weak banking management may be the reason for a series of foreign investors to divest from Vietnamese banks.

After joining the CPTPP, what are the opportunities and challenges of the banking industry in Vietnam? (part II)

  • Solutions

+ Strengthening internal resources, increasing competitiveness for internal banks

The Vietnamese banking system needs to restructure and boldly merge weak banks to make the whole system healthy, forming strong and strong banks that can compete with member banks. CPTPP. Building banks of international stature is essential to help Vietnamese banks not only stand firm in the country but also be able to gain market share abroad. Besides, domestic banks also need to increase the scale of capital by issuing shares to domestic and foreign investors. On the basis of increasing the capital scale, domestic banks will have many conditions to expand the network and branches covering all regions of the country. As a result, a higher proportion of local people have access to various types of banking and financial services.
 
In addition, the continuous innovation of technology and modernization of management methods in keeping with international trends will help improve service quality, reduce transaction costs, and contribute to bringing local banks closer to more potential customers. Not only increasing capital size, renovating technology, and improving management methods, diversifying products, and constantly introducing new products are also necessary strategies to increase revenue for banks in the country. If banks only focus on borrowing and lending, it will not make a difference. Besides traditional credit services, banks also need to expand the development of non-credit services. On the other hand, in parallel with the credit supply, banks need to strictly control the appraisal, post-landing inspection in order to minimize the bad debt ratio.

+ Focus on training and developing human resources

Building high-quality human resources is also an essential element to increase the competitiveness of domestic banks. The cooperation with foreign banks brings many opportunities to learn, improve professional skills, foreign languages ​​, and the ability to apply modern technology to domestic bank staff. In addition, domestic banks also need to be proactive in training staff so that they have a professional manner and a good service attitude.
 
Domestic banks must have human resources who understand the International Commercial Law and are well equipped with the knowledge and skills to research, analyze, evaluate, and forecast objective effects according to the model and international standards. International. To have a staff, not only operational staff but also management personnel, ensuring both quality and quantity, requiring banks to regularly open training, retraining, or sending employees to attend. participate in training short and long-term training courses at home and abroad. Focusing on training and retraining bank staff will contribute to improving the quality of human resources, improving competitiveness, ensuring long-term development for domestic banks.

+ Prevent "brain drain"

Along with improving the quality of labor force in the banking and finance industry is the problem of retaining talents, avoiding the shift of high-quality human resources of Vietnamese banks to CPTPP member countries. Domestic financial institutions should have reasonable remuneration policies such as salary regimes, welfare regimes to encourage employees to devote themselves to the organization, improve labor productivity. In addition to the salary and bonus system, good working conditions and prospects for future development are also important factors to help this team feel secure in the work and long-term attachment to the unit. Banks need to have an objective and effective staff evaluation mechanism, attached to professional ethical standards, taking labor productivity as the main measure. Banks need to ensure that individuals with good performance, effective work will be promoted, salary and bonuses are rewarded.
 
In addition to respecting talents, building a spirit of solidarity, cooperation, and helping each other at work is also very important. A working environment that lacks coherence, internal divisions, and conflicts of interest will push some of the elite members to foreign banks that are more transparent, fair, and supportive. On the other hand, banks also need to have policies to attract talents through attractive remuneration.

+ Supervise and minimize risks to the financial system

Vietnam needs to gradually improve the quality of analysis and forecasting to serve macroeconomic management and administration. We need to apply more modern quantitative analysis methods in the world, build standard data banks for the purpose of forecasting, and making policy recommendations. On the basis of early and accurate warnings, the whole banking system will be able to make appropriate responses and steps to prevent and minimize the negative consequences caused by financial system risks.
 
Facing the risks of the financial system such as the spread of the financial crisis, the risk of massive capital withdrawal, and asset price bubbles, strengthening the supervision of financial system risks is an urgent requirement. The Vietnamese financial system needs to standardize financial safety regulations as well as synchronous coordination between financial supervisory agencies to improve the quality of supervision and thus minimize risks to the whole system. system. Instead of specialized supervision, Vietnam needs to implement a consolidated financial monitoring model. There is a need to further strengthen the coordination and information sharing among the agencies responsible for supervision. In addition, Vietnam needs to quickly apply international standards in banking inspection and supervision and risk management. The inspection and supervision capacity of the State Bank, especially the capacity of remote supervision in service of on-site inspection, should be further improved in the near time.

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After joining the CPTPP, what are the opportunities and challenges of the banking industry in Vietnam? (part I)

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