Introduction
Regulatory policies are essential government rules that establish the boundaries for legal actions and behavior, aiming to achieve economic goals and improve social outcomes for citizens and businesses In the banking sector, these regulations provide necessary requirements and guidelines that banks must adhere to, ensuring transparency between financial institutions and their customers, whether individuals or companies Compliance with these regulations is crucial yet challenging for organizations across all industries.
Regulatory Impact Analysis (RIA) is a vital tool for evaluating the effects of proposed and existing regulations, highlighting both their positive and negative impacts Without RIA, government regulations risk becoming unaccountable, inconsistent, and non-transparent Additionally, RIA provides essential data that enables governments to formulate new regulatory policies that enhance economic growth and improve citizens' lives by predicting potential outcomes Ultimately, RIA ensures that regulatory policies are effective and beneficial.
2 efficient, effective, and up to date with a constantly changing and globalizing world
In recent years, commercial banks have faced significant changes in their business models due to market pressures, evolving risk-return preferences, and regulatory reforms Following the 2007-2008 global financial crisis, governments worldwide introduced regulations aimed at stabilizing the banking sector, which led to alterations in operational structures and a renewed emphasis on traditional banking services While these regulations have increased operational costs for banks, particularly in trading activities, many institutions have responded by pivoting towards retail banking and enhancing personal banking services.
Recent global challenges, including the escalating trade war between China and the US, heightened macroeconomic risks, and the lingering effects of the Covid-19 pandemic, significantly threaten Vietnam's macroeconomics and banking performance It is crucial for the State Bank of Vietnam to enact regulatory policies aimed at stabilizing, safeguarding, and invigorating the country's banking sector.
This thesis aims to research the relationship between regulatory policies and Vietnamese bank performance and consequently recommendations will be proposed in order to assist future policy making decisions
This study analyzes the regulatory impact on the performance of Vietnamese banks by employing the Stochastic Frontier Analysis model It utilizes data from a sample of 30 commercial banks in Vietnam, covering the period from 2010 to 2018 The findings reveal significant insights into how regulations influence banking efficiency and overall performance in the Vietnamese financial sector.
Main question: How do regulatory policies affects bank performance in Vietnam from 2010-2018?
- Is there statistical relation between the capital adequacy requirement and the cost efficiency of Vietnamese commercial banks?
- Did the regulatory policies implemented by the State bank of Vietnam had the desired effect on the banking sector?
This thesis comprises 6 chapters, including:
The introduction chapter offers an overview of the theoretical frameworks linking government regulatory policies to bank performance It outlines the thesis objectives, hypotheses, expected outcomes, and research direction, while also clarifying the purpose of the thesis and its overall structure.
This chapter examines various theoretical frameworks and past research that apply Regulatory Impact Analysis (RIA) to different economies and banking systems globally It also presents various methods and models suitable for conducting RIA, alongside the relevant findings from these studies.
Chapter 3 Overview of regulatory policies in Vietnam’s banking sector:
This chapter offers a comprehensive overview of the State Bank of Vietnam (SBV) and examines the current state of Vietnam's banking sector from 2010 to 2018 It highlights the regulatory policies in Vietnam, detailing the historical context of laws that influence the banking industry and analyzing the regulatory impact these policies have had on the Vietnamese banking sector.
This chapter describes the analytical framework of the SFA model for cost efficiency, then discuss the database, its sources and set up an econometric model
5 which will be used to conduct the estimations Then show the necessary steps needed to answer the research questions
Chapter 5 Empirical results and findings:
This chapter outlines the findings from the econometric model discussed in Chapter 4, allowing for a comparison with previous studies to identify the reasons behind the similarities and differences in results.
This chapter summarizes the conclusions from the empirical findings discussed in Chapter 5 and offers recommendations for future regulatory policies and policymakers in Vietnam, serving as a foundation for further research on the topic.
Literature review
The study of regulatory policies, including their techniques and applications, has been a significant focus of academic research Earlier investigations suggest that regulation theory encompasses both public interest theory and private interest theory, highlighting the complexities of regulatory frameworks (Baldwin R C M., 1999; Wegrich, 2012).
The public interest theory consider that regulatory policies and tools are developed with the goal of contributing to public interest (Baldwin R C M.,
The pursuit of public interest in regulatory policies aims to achieve goals that the market has not fulfilled (1999) However, defining public interest remains contentious, leading to conflicting interests during policy implementation (Landis, 1938) Issues arise from corrupt regulators who create biased policies for personal gain, as well as incompetent regulators whose poorly designed policies can harm the economy Furthermore, politically motivated regulations may prioritize the interests of specific parties or factions over the general public (REDFORD, 1952).
The private interest theory regards regulation as a direct result of the contest of power between different groups or parties Regulatory policies could’ve been
Regulatory policies are often negotiated by influential stakeholders and justified under the guise of public interest (Bernstein, 1995) Stigler (1971) argues that these regulations serve as tools for powerful private interest groups to manipulate industries for their own benefit However, this perspective does not account for all regulatory scenarios, as numerous regulations, including environmental protections, minimum wage laws, and restrictions preventing companies from entering specific markets, can contradict corporate profit motives.
A study by Johan den Hertog distinguishes between positive and normative theories of regulation Positive theories focus on the economic rationale behind regulation, aiming to understand the consequences of regulatory policies, which typically align market interests with government objectives and protect consumer rights while promoting healthy competition In contrast, normative theories assess the efficiency of different regulatory approaches, positing that effective regulations should encourage competition, minimize information asymmetry, and incentivize market participants.
8 improve performance, implement an efficient price structure and promote transparency
Other studies use many different theories to give definition to the term
Regulation can be categorized into economic and social types, with economic regulation further divided into structural and conduct regulations Structural regulations set conditions for market entry and exit, ensuring that firms meet necessary qualifications to offer products and services In contrast, conduct regulations govern the behaviors of providers and consumers, addressing aspects such as price control, labeling, advertising, and minimum quality standards.
Regulation can be categorized in various ways, with the government employing numerous tools to oversee different industries A prevalent method is to classify regulatory policies into three main types: command and control, performance-based, and management-based (Pritchett, 2016) Each policy type possesses unique advantages and disadvantages, making it essential to understand the appropriate application of each to effectively meet the economic or regulatory objectives established by the government.
Command and control regulatory policies aim to implement the most efficient and safe operational models devised by experts within an industry These policies offer the advantage of straightforward observation and evaluation, making it easier for government regulators to assess compliance However, they face criticism for being costly, stifling creativity and innovation, and often resulting in higher production costs for consumers Additionally, there are concerns regarding the capability of experts to consistently develop cutting-edge technology and safety measures.
Performance-based regulation has emerged as a popular alternative to traditional command and control policies, driven by the public's desire for reduced government intervention in business This approach is believed to foster innovation and lower production costs by motivating regulated entities to find the most effective ways to meet societal objectives However, it faces significant challenges, particularly in accurately measuring performance, as not all companies can be held to uniform standards Without proper monitoring and enforcement, this method may also lead to ethical concerns stemming from pressure to deliver results.
Management-based regulation has gained significant attention in recent years, focusing on achieving social goals through self-regulation by applicable entities This approach involves regulated entities carefully planning and setting their own standards and goals, which are then evaluated either internally or by an independent third party However, challenges remain, such as ensuring that the processes and goals established genuinely benefit the public and society, as well as the risk of institutions failing to adhere to their own plans.
2.2) Correlation between regulation and bank performance
In recent decades, numerous studies have explored the connection between regulatory policies and the banking sector, particularly following the 2007-2008 credit crisis, which led to the implementation of various new regulations in the industry.
A cross-country study by Fotios Pasiouras, Sailesh Tanna, and Constantin Zopounidis (2008) reveals that regulation is closely linked to the three pillars of the New Capital Adequacy Framework, or Basel II, which include capital requirements (pillar 1), official supervisory power (pillar 2), and market discipline (pillar 3) The findings suggest that regulatory policies that improve disclosure and incentivize private monitoring can significantly enhance banking activities.
Higher market discipline often leads to improved cost and profit efficiency in banks A positive correlation exists between supervisory power and both cost and profit efficiency While stricter capital requirements positively impact cost efficiency, they negatively affect profit efficiency Conversely, increased restrictions on bank activities show a negative correlation with cost efficiency but a positive correlation with profit efficiency.
Khurshid Djalilov (2019) did a research on the connection between bank regulation and bank efficiency in transition countries The study focuses on the
From 2002 to 2014, a study was conducted to analyze the effects of regulatory policies on bank efficiency before and after the 2007-2008 credit crisis The findings indicate that activity restrictions are the only regulatory measure that enhances bank efficiency, while other factors tend to have negative impacts Additionally, the study highlights that the effectiveness of regulatory policies varies based on the level of efficiency and the quantity of regulation implemented.
A study by Barth, Caprio, and Levine (2004) discusses two contradicting theories about the relation between banking restrictions and bank activities One
The issue of conflict of interest arises when banks are permitted to engage in a broader array of activities, leading to potential moral hazard challenges that complicate control and monitoring Such diversification may result in banks becoming excessively large, which can diminish efficiency and competition in the market Conversely, another perspective advocates for fewer restrictions on banks, suggesting that allowing them to participate in varied activities could be beneficial Research on this topic has produced contrasting conclusions, highlighting the ongoing debate around the regulation of banking activities.
Recent studies in Vietnam have evaluated how government regulatory policies affect macroeconomic stability and economic growth, highlighting the vital role of the banking sector in this process.
Overview of regulatory policies in Vietnam banking sector
OVERVIEW OF REGULATORY POLICIES IN VIETNAM’S
BANKING SECTOR 3.1) The state bank of Vietnam
The State Bank of Vietnam serves as the central bank and a ministerial agency of the Government of the Socialist Republic of Vietnam, as outlined in the 'Law on the State Bank of Vietnam' enacted on June 16, 2010.
The State Bank of Vietnam (SBV) is tasked with overseeing monetary activities, the banking system, and foreign exchange management It is responsible for issuing currency, serving as the bank for credit institutions, providing monetary services to the government, and managing public credit services The SBV aims to stabilize the value of the Vietnamese Dong (VND), ensure the safety of banking operations and the credit institution system, and support Vietnam's socio-economic development.
The 'Law on the State Bank of Vietnam 2010' led to the issuance of Decree No 16/2017/ND-CP on February 17, 2017, which outlined the functions, tasks, powers, and structure of the State Bank of Vietnam (SBV) This decree established that the SBV consists of 20 entities responsible for advising and assisting the Governor in fulfilling the central bank's roles, alongside 6 non-productive units A chart illustrating the structure of the SBV is provided for further clarity.
Figure1: Organization structure of the State Bank of Vietnam
This study examines the regulatory impact of the State Bank of Vietnam's (SBV) inspection and supervision policies, which are executed by the Banking Supervision Agency (BSA) Established under Decree no 26/2014/ND-CP, the BSA operates at the same level as other SBV departments and plays a crucial role in advising the SBV Governor on managing credit institutions, overseeing foreign bank branches, addressing claims and accusations, and combating corruption and money laundering Additionally, the BSA is responsible for monitoring deposit insurance, conducting inspections, preventing terrorist financing, and supervising banks and credit institutions within the SBV's banking system The BSA's activities encompass inspection, supervision, licensing, and the formulation of policies and legal documents.
3.2) Real situation of Vietnam’s banking sector from 2010-2018
Since the 1990s, Vietnam's banking sector has undergone significant development, evolving into a large and intricate network of banks and non-bank institutions By 2018, the system comprised 4 State-owned commercial banks (SOCBs), 31 Joint-stock commercial banks (JSCBs), 4 Joint-venture banks (JVBs), 9 wholly foreign-owned banks (WFOBs), and over 50 foreign banks, showcasing its growth and complexity over nearly three decades.
The country boasts 20 branches and a vast network of non-bank credit institutions, which includes 16 finance companies, 10 leasing companies, and nearly 1,200 people's credit funds operating across 57 cities and provinces With over 1.6 million participants in these people's credit funds, the system plays a significant role in the financial landscape.
As of 2018, the largest banks in Vietnam are Agribank, Vietcombank, and BIDV, each boasting total assets exceeding VND 1000 trillion In contrast, over half of the smaller commercial banks in the country have total assets below VND 50 billion and chartered capital of less than VND 5 billion Despite their relatively modest size compared to regional and developed country banks, Vietnamese banks are increasingly attracting investors, reflecting Vietnam's promising economic growth potential.
Table 1: Credit institutions in Vietnam (As of 31/12/2018)
No Type of institution Quantity
Figure2: The system of credit institution in Vietnam (Source: SBV2020)
Vietnam's banking sector exhibits a unique blend of concentration and dispersion While State-Owned Commercial Banks (SOCBs) continue to hold a significant market share, Joint Stock Commercial Banks (JSCBs) are steadily increasing their presence in both deposit and lending markets The growth is evident in the rising number of transaction offices, bank branches, automated teller machines, and bank accounts across the country.
The rapid growth of bank and credit card usage in Vietnam is primarily observed in urban areas and major cities Despite this expansion, the banking sector's market penetration remains low at approximately 25%, especially when compared to other countries in the region Nevertheless, this presents a compelling opportunity for long-term investment in Vietnam's banking sector.
As of December 31, 2018, Vietnam's banking system comprises four state-owned commercial banks: Vietinbank, BIDV, Agribank, and Vietcombank These banks collectively hold approximately VND 5 trillion in total assets, accounting for about 50% of the market share The dominance of these four SOCBs, which possess a combined asset total exceeding that of all joint-stock commercial banks (JSCBs) in the country, underscores their significant influence in Vietnam's banking sector.
To enhance the competitiveness of domestic banks and facilitate foreign investment in the banking sector, the government has been restructuring State-Owned Commercial Banks (SOCBs) by decreasing state ownership and increasing equity This initiative began with the implementation of Decision No 112/2006/QD-TTg in 2006.
Figure 3: Market cap of SOCBs in Vietnam
Despite the slow SOCBs equitization process, the Vietnamese government has overall achieved its objective, with most of the SOCBs now only have 51% state-owned capital
As of the end of 2018, Vietnam's banking sector comprises 31 Joint Stock Commercial Banks (JSCBs), with 9 major bank groups holding total assets exceeding VND 100 trillion The collective charter capital of these JSCBs has surpassed VND 200 trillion, nearly double that of State-Owned Commercial Banks (SOCBs) Notable JSCBs such as Eximbank, Sacombank, Saigon Commercial Bank, and MB Bank each boast charter capital exceeding VND 10 trillion, highlighting their significant presence in the market Additionally, 6 out of the 31 JSCBs are publicly listed.
24 companies, including Eximbank, Sacombank, MBbank, ACB, Saigon Commercial Bank, and Navibank
In Vietnam's banking sector, merger and acquisition (M&A) activities predominantly occur among Joint Stock Commercial Banks (JSCBs) Historically, these transactions have primarily involved domestic banks, with many rural JSCBs becoming key targets for M&A initiatives.
In recent years, the growing participation of both foreign and domestic investors has significantly influenced M&A operations among Joint Stock Commercial Banks (JSCBs) in Vietnam The trend of foreign strategic investors entering the Vietnamese banking sector has become prominent, particularly for JSCBs This influx allows foreign investors to efficiently access a burgeoning market while providing JSCBs with essential capital, as well as professional support, advice, and advanced techniques from more developed markets.
Since Vietnam signed the Bilateral Trade Agreement with the US in 2001 and joined the World Trade Organization (WTO) in 2007, the landscape for foreign banks in Vietnam's banking sector has undergone significant transformation.
25 presence of Wholly foreign owned banks and Foreign bank branches have been increasing significantly on a yearly basis
Methodology and Data
This study aims to estimate the regulatory impact on bank efficiency in Vietnam using a Stochastic Frontier Analysis (SFA) model, a method for assessing production function efficiency developed in the 1970s by Aigner, Lovell & Schmidt and Meeusen & Van den Broeck Numerous studies have since adapted this model to evaluate banking efficiency, including notable research on US banking conducted by Berger & Mester in 2001.
Portugal banking by Mendes & Rebelo (1999), on Nordic banks by Berg et al
(1993), Kumbhakar & Sarkar (2003) on Indian banks, Du & Girma (2011) on
Chinese banks, and Griffell-Tatje & Lovell (1996) as well as Kumbhakar et al
(2000) studies on the Spanish banking sector
The Stochastic Frontier Analysis (SFA) model, like traditional econometric methods, estimates key parameters of a firm’s functions, including production, revenue, profit, and cost, using regression techniques It accounts for observed sample deviations from optimal outcomes as statistical noise However, the SFA approach acknowledges that not all producers or economies will achieve optimal performance.
Commercial banks with similar features may not produce the same output, indicating varying levels of efficiency among them This disparity suggests that some banks fail to effectively utilize their inputs to minimize costs Directly observing and estimating the cost function is challenging; therefore, this model will assess inefficiency by comparing it to an efficient cost frontier.
Mester (1997) applied the Stochastic Frontier Analysis (SFA) model to evaluate the disparity between a bank's actual costs and the optimized costs of a similar bank operating under identical conditions This methodology identifies two primary sources of deviations in the observed data: inefficiency due to suboptimal input utilization and random shocks By estimating efficiency through the SFA model, it becomes possible to pinpoint banks that require intervention and corrective actions.
This study employs the Stochastic Frontier Analysis (SFA) model to effectively manage measurement errors and random effects It aims to assess the regulatory impact on the performance of Vietnamese banks by evaluating the cost efficiency of 30 commercial banks from 2010 to 2018 Within the SFA framework, the cost function approach is deemed more appropriate than the production function approach for this analysis.
45 easier time estimating multiple output Additionally, cost function assumes cost minimization, while production function assumes output maximization
This study employs a Stochastic Frontier Analysis (SFA) cost function to evaluate the regulatory impact on Vietnamese banks, utilizing a recent dataset from the State Bank of Vietnam (SBV) and other financial institutions in the country Following the methodologies established by Meeusen & Broeck (1977) and Aigner et al (1997), the stochastic cost frontier model will be applied to assess the effects of regulation on Vietnam’s banking sector.
Cit = C (yit , wit , qt , β) + exp(uit) + exp(Vit)
The Total Cost incurred by bank i at time t is represented by Cit, while yit signifies the output of bank i The input for bank i is denoted by wit, and q represents control variables The vector of all estimated variables is indicated by β, and uit is a non-negative random variable that captures technical inefficiencies.
Vit denotes measurement error and random effects
Both uit and Vit are time and bank specific variables Vit follows normal distribution uit follows probability distribution and can be depicted as N (àit, σu 2)
The following model was made based on previous literatures to analyze and estimate the regulatory impact of policies related to capital adequacy on bank performance:
COSTit = β0 + β1 SIZEit + β2 CARit + β3 PRICESit + β4 Yit + β5 DISCt + àit + vit
4.2) Variables and Sources of Data:
Table 5: Variables description and data sources
Variable Symbol Proxy Data Source
Total Cost COST Natural logarithm of total cost Bank financial reports Bank Size SIZE Natural logarithm of total assets Bank financial reports Capital Adequacy
CAR As required by Circular 13 and 36 Bank financial reports Non-interest cost PRICES Natural logarithm of non-interest cost Bank financial reports Loan outstanding balance
Y Natural logarithm of Loan outstanding balance
The discount rate, expressed as an annual percentage, is a critical financial metric set by the State Bank of Vietnam This study analyzes a dataset compiled from the Annual Financial Reports of 30 commercial banks in Vietnam, covering the period from 2010 to 2018.
The selected observation period is constrained by data availability and includes the durations during which 'Circular 13/2010/NHNN' and 'Circular 36/2014-NHNN' were implemented This timeframe allows for an analysis of the regulatory impact these policies had on the performance of banks in Vietnam.
This study will conduct SFA on STATA15 with a prior expectation that there is a negative link between regulatory policies and bank performance, based on the results of existing literature
Table 6: Statistical description of variables
Variable Mean Std Dev Min Max
Empirical results and discussion
The selection of independent variables is crucial for effective efficiency analysis Identifying the most significant variables is essential, as omitting relevant ones can adversely affect the estimation process and result in erroneous conclusions Conversely, including unnecessary or irrelevant variables can complicate the analysis, making it difficult to interpret.
Based on this, this study investigates the cost efficiency of commercial banks with a specified set of correlated variables, in line with the availability of data
5.1) SFA result of both Circular 13 and Circular 36 (2010-2018):
Table 7: Estimation result of SFA model (2010-2018) – STATA15
Coef Std Err z value Pr(>z)
Table 4 presents the results of the stochastic frontier analysis for Model 1, covering the period from 2010 to 2018, coinciding with the implementation of Circular 13 and Circular 36 The findings indicate that all frontier variables are statistically significant at the 1% level, with the variable Y showing significance at the 10% level Additionally, the estimated coefficients for SIZE, PRICES, Y, and DISC are all positive, highlighting their favorable impact within the model.
The only variable with a negative estimated coefficient is CAR, indicating that the capital adequacy requirement set by the State Bank of Vietnam through 'Circular 13/2010/TT-NHNN', effective from October 10, 2010, has a significant impact.
‘Circular 36/2014/TT-NHNN’ (which started being in effect since February 1 st
2015), had significant impact on the operation of every banks, credit institution, and the banking system as a whole, during their effective period 2010-2018
The negative estimated coefficient of the Capital Adequacy Ratio (CAR) and its statistical significance at 1% indicate that the 9% capital adequacy requirement enforced by the State Bank of Vietnam (SBV) through Circulars 13 and 36 has effectively enabled commercial banks and credit institutions to maintain an adequate capital buffer against potential risks in credit operations This regulation helps these institutions avoid the necessity of raising funds at high interest rates, thereby reducing operational costs and enhancing overall performance These findings align with previous studies on the global impact of regulatory measures, including research by Fries & Taci (2005), Kumbhakar & Wang (2007), and Manlagnit.
The analysis reveals that both the SIZE and PRICES variables exhibit positive estimated coefficients, with a statistical significance of 1% This indicates that an increase in bank size, along with rising non-interest expenses, negatively affects performance efficiency.
51 credit institutions and the banking system as a whole Not only that, a rise in discount rate is also shown to have negative effects on bank’s cost efficiency
Between 2010 and 2018, the State Bank of Vietnam (SBV) implemented two key regulatory policies, namely 'Circular 13/2010/TT-NHNN' and 'Circular 36/2014/TT-NHNN' This study aims to estimate the SFA model for these periods, specifically from 2010 to 2014 for Circular 13 and from 2015 to 2018 for Circular 36.
Coef Std Err z value Pr(>z)
Table 8: Estimation result of SFA model (2010-2014)
Coef Std Err z value Pr(>z)
Table 9: Estimation result of SFA model (2015-2018)
Estimation results for the periods 2010-2014 and 2015-2018 indicate that the Capital Adequacy Ratio (CAR) has a negative estimated coefficient, achieving 1% significance in 2010-2014 and 5% significance in 2015-2018 This reinforces the idea that the CAR requirements established by Circular 13 and Circular 36 positively impact the cost efficiency of commercial banks and credit institutions.
53 institutions It helps them prevent operational risks, and promote safe, healthy and effective growth
Conclusion and recommendations
In summary, the application of Stochastic Frontier Analysis on data from 30 Vietnamese commercial banks between 2010 and 2018 revealed that the capital adequacy requirements established by the State Bank of Vietnam through Circular 13/2010/TT-NHNN and Circular 36/2014/TT-NHNN significantly enhanced the performance of commercial banks and the overall banking sector By enforcing a capital adequacy ratio of 9%, these regulations enabled banks to maintain appropriate capital levels, mitigating operational risks and reducing the pressures associated with high-interest capital mobilization This not only lowered operational costs and improved efficiency for commercial banks but also provided a safety net against potential bank failures, thereby safeguarding depositors' interests and bolstering confidence in Vietnam's banking system.
Based on the empirical result of this study, some recommendations can be advised as follow:
To ensure the safety of banking operations, future regulatory policies should aim to:
To enhance financial stability in Vietnam's credit system, it is essential to address the inherent risks associated with credit, liquidity, market fluctuations, and low capital adequacy Regulatory policies should focus on equipping banks and credit institutions with the necessary tools to effectively manage these risks, thereby improving their financial health and equity positions.
To enhance administrative efficiency, future regulatory policies should enable banks and credit institutions to optimize resource utilization and reduce costs Additionally, these regulations must mandate that banks uphold safety ratios to mitigate the risks of financial collapse.
- Operational restructuring: regulatory policies should keep banks focus on credit activities and distance them from risky or inefficient markets, preventing corruption and other unnecessary risks The scale of credit
56 institution should also be maintained at a level suitable with Vietnam’s macroeconomics, geo-political, and socio-cultural situation
To stay competitive in the evolving financial landscape, commercial banks and credit institutions must diversify their product offerings and credit services As competition intensifies in credit activities, the gap between raised equity and outstanding loans will narrow, necessitating a broader lending portfolio By deepening their economic engagement and enhancing operational efficiency, credit institutions can effectively navigate these challenges and thrive in the market.
To effectively reduce non-performing loans, credit institutions must continue their efforts despite achieving the government's target of maintaining bad debt below 3% The State Bank of Vietnam (SBV) should also advocate for the government to address micro-economic challenges, including unsold inventory and other production obstacles.
The State Bank of Vietnam (SBV) should clearly define key components within regulatory policies, including operational safety ratios, debt and risk categorization, and guidelines governing banking operations This clarity will enhance compliance and understanding among financial institutions, ensuring a more stable banking environment.
6.2.2) For regulators and policy makers:
To improve the quality of surveillance and regulatory activities, and be able to timely report any operational safety risk, regulatory policy makers should aim to:
To enhance the stability of Vietnam's evolving economy, it is crucial to strengthen the legal framework governing bank inspection and surveillance A comprehensive legal basis will help mitigate operational risks effectively Additionally, policymakers must clearly define the responsibilities of the State Bank of Vietnam (SBV) in overseeing the financial system.
To enhance monitoring and management, it is essential to refine the information database by upgrading software and online systems to align with technological advancements Establishing a centralized database will facilitate the rapid, efficient, and accurate processing of information Additionally, improving the functionality of the Credit Information Center (CIC) will ensure that the State Bank of Vietnam (SBV) receives timely and precise data for effective oversight.
To enhance the effectiveness of regulatory operations, it is crucial to train and prepare professional bank monitors The skill and efficiency of human resources play a significant role in this process Monitoring institutions should implement comprehensive training programs for their staff and foster collaboration to ensure optimal performance.
58 foreign institutions in order to gain more experience and professional advices
To enhance communication with both domestic and international financial regulatory bodies, the State Bank of Vietnam (SBV) and other regulatory institutions should strengthen bilateral and multilateral cooperation with foreign entities Establishing agreements will facilitate improved oversight of foreign companies operating in Vietnam, thereby mitigating risks associated with fluctuations in the global financial market.
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