Interest rate and exchange rate: Basically these rates have been liberalized.

The State
Bank only influences the interest rate and exchange rage through the money market and
monetary policy instruments. Therefore, interest rates and exchange rates currently
reflect more closely the value of Vietnam dong, and follow the development of the
international and domestic money market. Interest rates were gradually liberalized in
sequencing and with caution. First of all, the real positive interest rate principle was
introduced since 1992. Deposit interest rates were liberalized in 1996, and lending
interest rates were determined through negotiation since June 2002. The foreign
exchange rate management was shifted from the fixed multiple exchange rate, with
administrative measures, to the flexible exchange rates that are regulated on the market
basis.

II. Banking Reform

1. Beneficiaries of the reform
Focusing on SOCBs and joint-stock commercial banks
2. Objectives of the reform
- Enhance financial capacity and competitiveness
- Enhance management, governance, and operation efficiency
- Making Vietnamese commercial banks strong enough for regional and
international integration
3. Reform contents
3.1 For SOCBs
- Financial restructuring, includes:
+ Re-capitalization to increase statutory capitals, ensuring capital adequacy
ratios
+ Solving NPL’s (Non-Performing Loans), cleaning banks’ balance sheets:
(i) Formulating special mechanism to solve NPL’s incurred before 31/12/2000;
(ii) Classifying and solving NPLs in consistency with international standards and
best
practices
- Re-structuring the organization and operation, including:
+ Differentiating between policy lending and commercial lending
+ Completing Business Strategy and Credit Manuals
+ Establishing specialized departments in charge of risk-management and
asset/liability
management
+ Establishing management information systems
+ Completing the internal control and internal audit mechanism
+ Practicing auditing in consistency with international accounting standards
- Formulating the Proposal on SOCBs equitization, primarily focusing on equitizing
the two
banks, VIETCOMBANK and MHB
3.2 For joint-stock commercial banks
- Increase the capitals to expand business scope:
+ Merger and acquisition of small joint-stock commercial banks into bigger joint-
stock
commercial banks
+ Call on shareholders to increase capitals or issue more shares to call for more
capitals
- NPL solutions:
+ Provision for risks
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+ Solving security assets (collateral), collecting debts to the end from customer
+ Debt re-structuring by: selling off the debts, transforming the debt into equity,
re-scheduling the debt, and rolling over

3.4.2 Financial re-structuring

- Re-capitalization
As of now, SOCBs’ statutory capitals have been injected with nearly 13.000
billion dongs by
the Ministry of Finance from the source of special Government bonds and other
sources; increasing
SOCB’s total statutory capitals to 17.000 billion dongs, step-by-step raising
equity, significantly
improving capital adequacy ratio in consistency with international standards
(8%).
Joint-stock commercial banks have also continuously issued shares to call for
equity from
shareholders and the public. Almost all joint-stock commercial banks have
reached the capital
adequacy ratio in accordance with the State Bank of Vietnam’s regulations.
-Solution of NPL
90% of NPLs incurred before 31/12/2000 have been solved by such measures as:
collection in cash, solution of security assets (collateral), using provisions for
risks… and the
Government has also assisted by the State budget. As of now, joint-stock
commercial banks’
NPLs are below 5% of the total debt outstanding (by the Vietnamese Accounting
Standards).

III. Prospects for the Vietnamese Banking Sector in the coming

time
As of 31/12/2004, Vietnamese commercial banks have basically solved all old
problems,
creating basis to apply stronger measures in the upcoming time, when Vietnam
joins the WTO and
opens the markets as required under the US-Vietnam Bilateral Trade Agreement.
Vietnam needs to
push up liberalization of services of the financial and banking sector.
In the coming time many foreign banks will be operating in Vietnam with many
new banking
products and services. This requires the Vietnamese banking system to further
reform:
+ About policy, legal environment: the Government and the State Bank of
Vietnam have to revise,
supplement, promulgate new regulations on banking activities, first and foremost
regulations on
accounting, debt classification, allocation of provisions against risks, prudential
ratios in banking
activities in consistency with international standards and best practices; ensuring
every entity
operating in Vietnam in the same operation sector has the same rights and
responsibilities, without
discrimination.
+ Completing the mechanism and enhancing capacities for the State Bank of
Vietnam’s Supervision force,
performing the roles of supervision and monitoring over the banking system
against risks; formulating
early warning procedures of risks, especially credit risks;
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+ Stepping up the implementation of re-structuring proposals in order to increase
financial capacity
and competitiveness of commercial banks, especially SOCBs, in: classification
and solution of
NPLs; raising equity; formulating solution plans of NPLs of the Vietnamese
banking system once
all NPLs are classified in accordance with international standards; continuing to
cooperate with
foreign consultants and organizations for technical assistance in banking reforms.
+ Customers of commercial banks are still mainly state-owned enterprises.
However, in the past time,
those enterprises were not working efficiently, some enterprises were at
prolonged loss, unable to
repay bank loans, leading to huge debt outstanding. The fact that the
Vietnamese Government is
stepping up the equitization and re-arrangement process of State-owned
enterprises will dissolve
inefficient and loss-making enterprises; creating a healthy business environment.
In fact, equitized
enterprises are operating more efficiently and able to repay bank loans.
In the process of re-arrangement of State-owned enterprises, being big creditors,
commercial
banks need to actively participate in the financial analysis process of enterprises
for better
re-arrangement decisions, making enterprises’ repayment more possible.
+ Stepping up the process of SOCBs equitization to call for big capital from the
public both at home
and abroad. In which, foreign individuals and organizations can hold shares of
equitized SOCBs
as well as can participate in governance and management of banks and modern
banking
technology transfer for banks; thus giving a new impetus for SOCBs operation.