This presentation summarizes the development of Vietnam's banking system and its impacts. It discusses the history and present state of Vietnam's banks, including the State Bank of Vietnam and commercial banks. The banking system's development positively impacted the economy through supporting GDP growth, but its efficiency declined over time. Socially, banking growth supported poverty reduction but also inequality. Nationally, an expanded banking sector contributed to Vietnam's economic and diplomatic integration internationally.

1. WELLCOME TO OUR PRESENTATION!!!
The development of bank system in Vietnam and its
impacts on the development of the country
Group members: Bùi Xuân Sơn
Lê Việt Cường
Vũ Tuấn Nghĩa
Guiding Teacher:
MA. Phan Kim Thoa
Hà Nội October 2013

2. The development of bank system in
Vietnam and its impacts on the development of the country
• THE DEVELOPMENT OF THE BANK SYSTEM IN VIETNAM
• THE IMPACTS OF THE DEVELOPMENT OF BANK SYSTEM IN
VIETNAM ON THE DEVELOPMENT OF THE COUNTRY
• THE CONCLUSIONS

3. I. THE DEVELOPMENT OF THE BANK SYSTEM IN VIETNAM
1.The history of the bank system.
2.The present bank system in Vietnam
a. State Bank of Viet Nam
b. The Vietnamese commercial bank system

4. 1.The history of the bank system:
a.The definition
A bank is a financial institution and a financial intermediary that
accepts deposits and channels those deposits into lending
activities, either directly by loaning or indirectly through capital
markets. A bank is the connection between customers that have
capital deficits and customers with capital surpluses.
b. The development of the banking system
The History of Banking
- This began around 2000 BC in Assyria and Babylonia.
- Banking, in the modern sense of the word, can be traced to
medieval and early Renaissance Italy, to the rich cities in the north
such as Florence, Venice and Genoa.

5. 1.The history of the bank system in Vietnam
The development of banking spread from northern Italy through Europe and
a number of important innovations took place in Amsterdam during the
Dutch Republic in the 17th century, and in London in the 18th century.
During the 20th century, developments in telecommunications and
computing caused major changes to banks' operations and let banks
dramatically increase in size and geographic spread.

6. 2.The present bank system in Vietnam
a. State bank of Viet Nam
-The development of the Vietnam banking system has closely linked with
the national cause of revolution and construction.
-Before the August Revolution in 1945, Vietnam was a feudal-colonial
country under the French colonialists’ rule. The banking and credit system
was founded and protected by the French colonialists through the Indo
China bank.
-On the basis of the new economic and financial policy set out in the 2nd
Congress of the Vietnam Workers’ Party (February,1951), President Ho
Chi Minh signed Decision 15/SL on the establishment of the Vietnam
National Bank – Bank of the first people’s democratic state in Southeast
Asia in order to carry out five urgent missions: issuing banknotes,
managing treasury, carrying out credit policy in order to facilitate
production and coordinating with the trade authorities for monetary
management and struggling against the enemy.

7. 2.The present bank system in Vietnam
On January 21st,1960, the Vietnam National Bank was renamed as the
State Bank of Vietnam, in accordance with the 1946 Constitution of the
Democratic Republic of Vietnam. Following the liberation of the South in
1975, the takeover of the Republic of Vietnam National Bank and private
capitalist banks was a starting point of banking activities all over the
country under thebanking activity regime of a central planning economy. In
July 1976, the country was officially unified and the Socialist Republic
of Vietnam was founded.

8. 2.The present bank system in Vietnam
-From 1975 to 1985: This is the ten-year postwar economic recovery after
the liberation and reunification of the country. As such, Vietnam built up
the new banking system under the new government, establishing a
country – wide unified banking system and liquidating the banking
system of the previous government in the South.
-From 1986 to 1990: the state management function was gradually
separated from the commercial credit and monetary functions. The new
mechanism of banking operations was built up and gradually improved.
-From 1991 up to now: To implement the CPV's directions and policies
during the period of modernization and industrialization, Vietnam’s
banking system has been continuously reformed and improved to
ensure its important role in national construction and economic
development in the new millennium.

9. 2.The present bank system in Vietnam
b. The Vietnamese commercial bank system
Commercial bank system in Vietnam consists
- 5 State-owned Commercial Banks (SOCBs)
- 36 joint-stock commercial banks:
- 4 joint-venture banks
- 28 branch offices of foreign banks
Besides, there are 1 Social Policy Bank and several financial
companies, finance-leasing companies and people’s credit funds,
5 SOCBs take up 3/4 of the total deposits and lending; the rest belongs to
joint-stock commercial banks, branches of foreign bank and other credit
institutions.

10. II. THE IMPACTS OF THE DEVELOPMENT OF BANK SYSTEM
IN VIETNAM ON THE DEVELOPMENT OF THE COUNTRY
1. Economic impacts
a.Macroeconomic impacts
b. Microeconomic impacts
2. Social impacts
a. High growth goal and its impact to the poor
b. Imperfect market and inequality
3. National security and external front

11. 1. Economic impacts
a.Macroeconomic impacts
The macroeconomic impacts of the development of bank
system on the development of Vietnam can be calculated by:
- Comparing the outputs (quantity and quality of banking services)
and the inputs (financial investments to the banking system) through
Data Envelopment Analysis (DEA).
- Based on reviews and reports of international financial institutions
such as the World Bank (WB), International Monetary Fund (IMF),
Asian Development Bank (ADB), but also reports from specialized
organizations such as Business Monitor International (BMI) ,
Moody’s Investor Service (MIS) or Fitch Ratings (FR) and SBV .

12. a.Macroeconomic impacts
Table 1: Descriptive statistics of input and output variables in
the period of 1990-2010
Deposits
Mean
Credits
GDP
M2
350,317.52 501,257.52 618,689.48
562,801.19
Standard Deviation 529,027.73 765,144.96 547,312.25
775,275.51
Minimum
Maximum
3,943
9,960
41,955
1,934,593 2,889,525 1,980,914
11,358
2,789,184

13. a.Macroeconomic impacts
Figure 1: Efficiencies of Vietnamese banking system (1990-2010)

14. Figure 1: Efficiencies of
Vietnamese banking
system (1990-2010)
• The efficiency was higher at the beginning
of 1990s and then decreased sharply
afterward. A slight recovery was seen in the
2009-2010 periods but the efficiency scores
were still low, settled under 0.6.
• In average, the eficiency score of the whole
banking system during 1990-2000 period is
0,695 which mean the system is only
running at about two-third of capacity.

15. a.Macroeconomic impacts
DEA model tells us is about objective (or targeted) value of outputs, which
should be achieved if the banking system can optimize its efficiency.
According to this result, as the efficiency scores decreasing through the
time, differences between objective and original value became bigger; that
made total difference of the whole period reach 96,763,482 billion Dong,
account for more than 7.4% of total GDP from 1990-2010. Within this
difference (or so-called waste), the most wasted factor is GDP (around 81%)
while Credits and M2 are 8% and 11% wasted accordingly.
It suggests that the contribution of banking system into the
economic development in Vietnam has been very limited,
particularly in macroeconomic

16. b. Microeconomic impacts
i. Foreign bank presence, efficiency, and competition
- Foreign bank presence has been linked to lower net interest
margins, profitability, cost ratios, and non-interest income for
domestic banks in developing countries.
- Foreign banks in developing countries are relatively strong
competitors in underdeveloped banking markets and can exert
pressure on domestic banks to become more efficient and
competitive.

17. b. Microeconomic impacts
ii. The stability of banking sector
- From developed and developing countries indicates that greater
foreign bank presence is associated with lower probability of systemic
banking crisis in the host country
iii. The ability of people to access to credit
The foreign banks skim off the top customers.So the
domestic banks have to seek to the smaller
customers, who are much more in quantity.
There are more money in the system.

18. 2. Social impacts
The development of the bank system in Vietnam contributes
a remarkable part in the economic growth, so it will be a part
of those issues:
a. High growth goal and its impact to the poor
The high economic growth in the last decades contributed to poverty
alleviation, reduced the number of poor households and improving living
standards of the Vietnamese population by increasing the average income
per head year by year. However, a high economic growth created a number
of burdens in the macro-scope of the economy, including inflation.

19. 2. Social impacts
In the case of high inflation, the poor had to spend almost all their
savings on necessities (food and things, clothes, etc.) at higher prices.
Moreover, because these amounts of money were limited, it was not enough
to transform into other more beneficial kinds of investments, the poor
usually became vulnerable to price skating. Therefore, high inflation
affected the poor the worst.
b. Imperfect market and inequality
In the beginning of the economic reform, there was equality in all
aspects in Vietnam relatively. Market mechanism encouraged economic
growth, brought greater benefits and more opportunities to population. It also
extended the gap between the rich and the poor.

20. 3. National security and external front
The over-all achievement on the external front is that from a country
isolated politically and embargoed economically, Vietnam has been able to
actively expand its external relations towards diversification and
multilateralization. Over the past 20 years of Doi Moi, diplomatic ties with
additional 57 countries have been set up. In total, Vietnam now has
diplomatic relations with 169 countries and trade ties with 224 out of 255
countries and territories.
Vietnam has also established a framework of friendly, long-term and
effective relations with neighboring and regional countries, making worthy
contribution to the maintenance of regional security for the benefit of
national economic development.

21. III.THE CONCLUSIONS
The research provides a different view on the performance of
the banking system in Vietnam in the last two decades of
development (and financialliberalization) under the view point of
efficiency measurement. It appends to the literatures in concluding
that the efficiency (and thus, performance) of the Vietnamese
banking sector is decreasing through the time as the size of the sector
increases, financial market is more liberate, and when the World and
regional economies are problematic.
The research also provides a new function for the DEA
approach in evaluating banking efficiency and performance in
various ways.

22. THANK YOU