According to “Vietnam Financial Sector Forecast to 2013”, bank loans in Vietnam will get double by the end of 2013. This will be on the back of subsidized interest rate schemes and large consumer credit demand.
As per the report, bank lending in Vietnam is treated as an arm of the government policy, with banks directed to offer preferential interest rates and debt relief to farmers and still often enjoying a cozy relationship with large state-owned enterprises. However, the lending practices of state-owned banks, generally favor state-owned firms over private companies. As a result, private firms often have to use short-term borrowing to finance long-term investments.
The study stated that with the growing rate of interest on depository products offered by banks and increasing consumer confidence on the banks, the bank deposits are projected to grow at a fast pace. Most of the banks in Vietnam are raising interest rates to attract more funds to meet their capital requirement. Banks, which have not announced hike in interest rates, have launched promotion programs to mobilize more capital as their capital demands have become increasingly high. Besides, a number of banks in Vietnam are offering negotiable deposit rates to attract more customers.
The banking sector in Vietnam has shown unprecedented growth during the past few years with increase in penetration of foreign insurers and improvement in services offered by domestic banks. However, the sector remains largely underdeveloped compared to the banking sectors in other Asian economies such as, India and China. Vietnam’s banking sector is transforming and ongoing deregulation will fuel the sector’s growth in coming years. The country’s banking and financial services sector is developing at twice the country’s rate of GDP growth with growing consumer demand, and increased internationalization of the banking system.