Vietnam’s Banking System: Structure, Reform, And Strategic Outlook

Last updated on August 13th, 2025 at 01:35 pm

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Vietnam’s banking system has evolved rapidly over the past three decades, transforming from a mono-banking socialist model into a dynamic, semi-liberalized system with strong state control and growing private participation. Its development mirrors certain structural aspects of the Japanese banking system, particularly in the role of state guidance, consolidation trends, and a focus on financial stability over rapid liberalization.

1. Historical Evolution

Prior to the Đổi Mới reforms of the late 1980s, Vietnam operated under a mono-banking system in which the State Bank of Vietnam (SBV) acted as both central bank and commercial lender. With Đổi Mới, Vietnam adopted market-oriented reforms, establishing a two-tier banking system:

Tier 1: The State Bank of Vietnam (SBV) – serving as the central bank
Tier 2: Commercial banks and credit institutions – including state-owned and private sector banks

This bifurcation laid the foundation for a diversified, though still tightly managed, banking sector.

2. Core Structure of the Banking System

Vietnam’s banking system today is composed of:

State-Owned Commercial Banks (SOCBs)

These are the legacy giants of the Vietnamese financial system, often with close links to state-owned enterprises (SOEs).
Examples: Vietcombank, VietinBank, BIDV, and Agribank.
They account for a substantial portion of banking assets and are considered too important to fail.

Joint-Stock Commercial Banks

These are private-sector banks often listed on the Ho Chi Minh Stock Exchange.
Examples include Techcombank, ACB, VPBank, and MB Bank.
Many of these banks are aggressively expanding retail banking, fintech partnerships, and digital services.

Joint-Venture and Foreign Banks

Foreign participation is permitted but restricted in terms of majority ownership in local banks.
International players like HSBC, Standard Chartered, Shinhan Bank, and Mizuho operate in Vietnam, often in joint ventures or through local branches.

People’s Credit Funds, Microfinance Institutions, and Finance Companies

These non-bank financial institutions (NBFIs) provide microloans and credit to underserved populations, especially in rural areas.

3. Regulatory and Supervisory Framework

The State Bank of Vietnam (SBV) governs the sector. Its responsibilities include:

Issuing monetary policy
Regulating and supervising banks
Licensing new institutions
Managing exchange rates and foreign reserves
Controlling inflation and credit growth

Vietnam’s central bank plays an unusually active role in directing credit to priority sectors (e.g. agriculture, export manufacturing) and limiting credit to speculative areas (e.g. real estate and stocks).

The SBV uses a combination of:

Administrative tools (e.g., credit growth quotas)
Market-based tools (e.g., reserve requirements, open market operations)
Moral suasion (e.g., policy guidance to SOCBs)

This is somewhat reminiscent of Japan’s “window guidance” system, used by the Bank of Japan in the postwar era.

4. Reform and Modernization Efforts

Since the early 2000s, Vietnam has prioritized banking reform with goals to:

Reduce NPLs (non-performing loans)
Strengthen bank capitalization
Improve governance and transparency
Promote digital banking and fintech adoption

Non-performing Loans (NPLs) and VAMC

Vietnam struggled with high NPLs after the 2008 global financial crisis. In response, it established the Vietnam Asset Management Company (VAMC) in 2013 to help banks offload bad debt.

While VAMC helped stabilize the sector, transparency remains a concern, as some NPLs remain hidden or restructured creatively.

Bank Capitalization and Basel Compliance

Vietnam has pushed banks to adopt Basel II standards, with a roadmap for Basel III. However, many smaller banks remain under-capitalized.

As of 2025, only a handful of banks (like Vietcombank and Techcombank) meet full Basel II standards.
SOCBs, though dominant, are still reliant on state capital injections to remain compliant.

Digital Transformation

Vietnam is leading Southeast Asia in digital banking growth:

Over 75% of the adult population has access to financial services.
Mobile payments, QR code payments (via apps like Momo, ZaloPay), and internet banking are booming.
The SBV is piloting a central bank digital currency (CBDC) for interbank use in remote areas.

Digital banks like TPBank LiveBank and Cake by VPBank are innovating in customer acquisition and servicing, often in partnership with telecoms or e-commerce platforms.

5. Challenges Facing the Banking Sector

Despite its progress, Vietnam’s banking system faces significant challenges:

Concentration Risk and State Dominance

SOCBs still dominate lending and deposit-taking, which can crowd out private sector innovation.
Many still serve as funding conduits for state-led infrastructure and industrial policy.

Transparency and Governance

Related-party lending, weak auditing standards, and political connections have at times undermined trust.
Corporate governance reform is ongoing but uneven across the sector.

Credit Growth vs. Inflation Control

Vietnam relies heavily on credit expansion to fuel GDP growth.
This creates long-term risks of asset bubbles, especially in real estate.

Climate and ESG Readiness

Banks are beginning to integrate ESG principles, but green finance is still nascent.
The SBV has issued some guidance, but enforcement is limited.

6. Comparison to Japan’s Banking System

Vietnam’s banking structure bears some notable similarities to Japan’s, especially during Japan’s postwar growth phase:

State Guidance

Like Japan’s former Ministry of Finance and Bank of Japan, Vietnam’s SBV uses direct credit controls and encourages banks to align with national development goals.

Bank-Corporate Conglomerate Links

SOCBs maintain strong ties with state-owned or state-aligned corporations, similar to Japan’s historical keiretsu model.

Conservative Monetary Policy

Both Japan and Vietnam have preferred gradual liberalization, prioritizing financial stability over rapid foreign inflows or deregulation.

Crisis Legacy Management

Japan’s post-bubble banking crisis in the 1990s led to long-term NPL challenges and zombie banks—something Vietnam has tried to avoid via VAMC.

However, Vietnam is also diverging:

It is embracing digital banking and mobile-first solutions faster than Japan did.
It faces stronger foreign investor pressure due to FDI and trade pacts like RCEP and CPTPP.
Vietnam is still emerging-market fragile—more vulnerable to FX volatility and external debt.

7. Outlook and Strategic Priorities

Vietnam’s banking system is positioned for continued growth and consolidation. The SBV aims to reduce the number of small, undercapitalized banks through mergers and stricter supervision. Key priorities for 2025 and beyond include:

Full Basel III adoption for systemically important banks
Expansion of fintech sandbox policies to encourage innovation
Development of green finance frameworks
Digital ID and e-KYC systems to support financial inclusion
Managing credit growth without overexposing the real estate sector

Conclusion

Vietnam’s banking system is a hybrid — state-guided but increasingly market-driven, with many similarities to Japan’s past model of developmental banking. It has made substantial strides in reform, technology adoption, and risk management, yet still contends with state dominance, opacity, and structural fragility. If reform continues and supervision tightens, Vietnam could emerge with one of Southeast Asia’s most modern, inclusive, and resilient banking ecosystems — a system shaped by its own past, but also informed by the quiet lessons of Japan’s rise.