Many Vietnamese Still Cannot Access Financial Channels, MPI Said

Diep Nguyen

16:02 06/12/2018

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Alternative uses of mobile phones would improve financial inclusion in remittances and deposits at lower cost.

Many Vietnamese Still Cannot Access Financial Channels, MPI Said
The financial sector has expanded rapidly since the early 1990s, but still has wide scope to take on the bigger role. It has done a reasonably good job of mobilizing savings but fallen short of allocating credit to its most productive uses and providing an inclusive payment system.
Much of the lending, especially by state-owned commercial banks, has gone to SOEs, or increasingly to private companies with connections, crowding out lending to productive segments of the domestic private sector. 
Financial inclusion has increased since the early 1990s, but remains an issue for less well-off Vietnamese, especially in rural areas.
The banking sector is struggling, having taking a big hit after the global financial crisis toppled the real estate market (where the banks had heavy exposure). Bank’s average return on assets as fallen steeply since the crisis (from 1.8 percent in 2007 to 0.5 percent in 2012).
Their reported non-performing loans (NPLs) have risen and are generally considered undertstated. And their provisions are lower than in middle-income peer countries in Eat Asia. Many of the NPLs and restricted loans are related to SOEs. Moreover, the cross ownership by banks by each other and by enterprises remain significant. 
Vietnam has done fairly well in lending to individuals relative to other lower middle-income countries, but not as well in deposits and remittances.
Remittances in Vietnam tend to go through financial institutions with much less use of mobile phones and money-transfer operators. Alternative uses of mobile phones would improve financial inclusion in remittances and deposits at lower cost. 
Although Vietnam would need major changes in regulation, for finance and telecommunications, this approach would take advantage of the country’s large number of mobile phone subscriptions. 
Financial inclusion in Vietnam would also require higher-quality credit information on borrowers.

DIEP NGUYEN

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