Endless credit poses the risk of funds being misused by the country's four major banks.
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Vietnam's government should cut its stakes in state-controlled banks to around 51 percent from the current ownership of 84 percent to ensure security and improve competitiveness within the banking sector, industry expert Can Van Luc said at a workshop last week.
Data shows that Vietinbank remains 64.5 percent state-owned, BIDV 95.3 percent, Vietcombank 77.1 percent and Agribank 100 percent.
BIDV is the country’s largest bank by assets and worth VND859 trillion ($38.5 billion), Argibank is second with VND833 trillion followed by Vietinbank with VND792 trillion in assets and Vietcombank with VND662 trillion, according to the banks’ reports released in June.
Can Van Luc said in a set of recommendations that the government should reduce its majority stakes in public sector banks to remove constraints on the state budget.
As a major shareholder, the government is forced to use taxpayers’ money to ensure liquidity for these four big lenders, Luc explained.
State-owned banks account for around 50 percent of total assets in the banking sector estimated at $247 billion, or 128 percent of gross domestic product, Luc said.
Apart from 36 local banks, the banking sector includes 51 foreign bank branches, four joint venture banks, 17 financial firms and 12 financial leasing companies. There are also around 50 foreign bank representative offices in the country.
Luc highlighted the fact that the government is channeling most policy credit lines through public sector banks.
Data shows policy credit lines or low interest loans account for 8 percent of the total outstanding loans in the banking sector.
He estimated that figure could be as high as 43 percent if it includes low-interest loans that the government offers to businesses in priority sectors such as agriculture, support industries and high technology.
For example, the central bank issued a loan package worth VND70 trillion ($3.1 billion) in 2014 to bolster the struggling property market. The package, which allowed companies already burdened with non-performing loans, to access new funding in order to finish their projects and eventually pay back lenders. It was only available to the market through state-run banks.
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By supplying state-controlled banks with this abundant credit line, the government is giving them an advantage over their private sector rivals and raising the risk of public funds being misused, Luc said.