With the launch of the "Doi Moi" policy in the year 1986, the economy of Vietnam showed marked improvement. The shift was more towards an economy, which was market oriented. The economic reforms were important because they would influence the policies and the developments that would take place in future. Improvement was also seen in the banking sector. This indicates that financial liberalization and reform in economy are closely related, mutually benefiting each other.
The economy of Vietnam was backed by the system of "one bank" with the State Bank of Vietnam at its center in the year 1998. By improving upon latest technical know how, capital, expertise of experienced management, the banking sector in Vietnam can move ahead. By doing so, the country would be in a position to compete globally. International integration instills a need for banking sector reform in Vietnam. By implementing banking sector reform in Vietnam, the quality of services offered by the banks can be improved to a large extent. Banking sector reform in Vietnam ought to aim at programs, which would promote modernization as well as industrialization.
Reasons for banking sector reform in Vietnam:
Several challenges have to be faced by the banking system in Vietnam, which explains why banking sector reform in Vietnam is obligatory. Along with the many commercial banks, the State Bank of Vietnam is not spared. Challenges are more pronounced pertaining to international integration.
Challenges faced by banks in Vietnam:
The domestic financial market is more volatile as compared to the international financial market. To curb this volatility measures have been taken by liberalizing the rates of interest and the exchange rates.
With globalisation in the financial sector the domestic banks have entered into tough competition with the foreign banks which has in turn improved their efficiency.
In case the banking system in Vietnam is characterized by poor quality, low efficiency, poor financial resources, lack of well versed banking professionals, banking sector reform in Vietnam need to be implemented.
Banking sector reforms in Vietnam are also needed when domestic banking operations are not compatible with the international banking operations. Also important to note is when the domestic banks in Vietnam fail to comply to norms governing safety of the banking operations.
With introduction of banking sector reform in Vietnam, banking network can be worked up for the better. However, initially, the banks may have to bear losses as compared to the profits they would earn but to stay put in the international market, first reforms within the country have to be ensured.
The global crisis changed the face of monetary policy. Central banks deployed new tools to counter the effects of the crisis, which have reduced the risk of deflation, stabilised the financial system and calmed financial markets; but potential negative side effects remain.
Two weeks ago, the IMF organized a major research conference, in honour of Stanley Fischer, on lessons from the crisis. Here is my take. I shall focus on what I see as the lessons for monetary policy, but before I do this, let me mention two other important conclusions.
Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum
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