Banks: The capital pillar for growth in the next decade

In Vietnam’s unique “bank-based” financial structure, the banking system not only plays a role in mobilizing and distributing capital, but is also a pillar of macroeconomic stability, a key driving force for growth and innovation. Experts affirm that in the medium and long term, banks remain the most important capital channel for the economy, playing a central role for at least the next two decades. This role becomes even more evident as Vietnam sets high growth aspirations.

According to Associate Professor Dr. Nguyen Huu Huan, University of Economics Ho Chi Minh City, to achieve a double-digit economic growth rate from 2026 onwards and maintain that rate for 20 consecutive years until 2045 to help Vietnam enter the era of development, a huge amount of capital is required. In particular, in Vietnam, the economy is a bank-based system - that is, the growth and capital mobilization system relies heavily on banks. Currently, the debt to GDP ratio has exceeded 130%, showing that the role of banks in the financial system is very large. However, it also has many potential risks.

Analyzing this, Dr. Nguyen Tu Anh, Director of Policy Research at VinUni University, said that with the above economic growth target, credit growth needs to reach about 15%/year from now until 2030. Thus, in the next 5 years, credit will have to double. At that time, the size of bank assets, equity and other related factors will also increase accordingly. Although the capital market is expected to develop to share the burden, Dr. Nguyen Tu Anh affirmed that Vietnam is a bank-based system and this trend will be maintained in the next 15 years, because the nature of the capital market requires individuals to "deal risks" themselves (assess, manage and minimize risks). This is too big, especially for a developing market like Vietnam, the risk is even greater. Because our governance and legal systems are not tight enough to limit those risks. “Therefore, although we really want the capital market to develop to share the burden with the banking system, in the medium term, I think the role of banks is still important,” he said.

The banking system is a key driver of growth and innovation.

Sharing the same view, Mr. Quan Trong Thanh, Director of Analysis Department of Maybank Securities Vietnam, affirmed that the role of the main capital channel will be even greater in the coming period. Statistics show that in the period 2020-2024, the total social investment capital will reach about 682 billion USD, of which the domestic sector must take on the majority, equivalent to more than 250 billion USD per year. This means that the domestic banking system still bears the majority of the responsibility for providing capital to the economy.

From an investment perspective, Mr. Quan Trong Thanh affirmed that the role of banks as the main capital channel will be even greater in the coming period. In the next 5 years, the investment capital demand is estimated at about 1,400 billion USD; of which FDI capital is only 24-30 billion USD/year, the remaining more than 250 billion USD/year must come from domestic sources. This means that capital flow for growth still mainly depends on the domestic banking system.

However, in the context of the capital demand for the economy reaching 1,400 billion USD in the next 5 years, if we only rely on domestic capital, according to Mr. Thanh, it is certainly not enough and we need to mobilize capital from abroad. To do that, according to Mr. Thanh, Vietnam needs to continue efforts such as upgrading the stock market. This is an important measure, along with the extremely important development of the bond market. However, if we want the bond market to be wide enough, deep enough, with the participation of foreign investors at reasonable capital costs, we must first upgrade the national credit rating. To upgrade the national credit rating, the financial health of the banking system, especially the State-owned commercial banks, must be strengthened, clearly demonstrated by improving the capital adequacy ratio (CAR) and allowing them to be more proactive in managing profits.

Another equally important factor contributing to the realization of the economic growth target of 10% next year, according to Dr. Tu Anh, will depend largely on the success of the digitalization process, helping decisions in the economy become faster and more accurate. Currently, the banking and financial systems are at the forefront of digital transformation, thereby creating a spillover effect. For example, in payment, electronic identification (eKYC) helps stimulate other areas to also have to transform digitally, such as digitalization in accounting, leading to digitalization in production. This expert added that banks are strongly developing a shared platform API system that helps many new financial initiatives emerge. “In the future, I believe that banks will increasingly apply smart contracts, automated contracts. This will help banks gain more and more advantages,” Mr. Tu Anh emphasized.

Commenting on this issue, Mr. Quan Trong Thanh said that from the perspective of digital transformation, banking is an industry with well-structured data, human resources and close to the management agency, so it has the ability to take the lead in the digital transformation process. Currently, banking is the industry that is applying digital transformation the most, both in internal operations and in providing services to customers. According to Mr. Thanh, recently, some banks such asACB , MB... have been very active in supporting businesses to be standardized in terms of data. It is this data that will be the input source for banks to use big data systems and artificial intelligence (AI) to build credit valuation models. Thereby, opening up investment space will be gradually expanded.

Source: https://thoibaonganhang.vn/ngan-hang-tru-cot-dan-von-cho-tang-truong-trong-thap-ky-toi-173241.html