The World Bank and the State Bank of Vietnam today signed a financing agreement for a grant worth US$2.2 million provided by the Swiss Government to implement the Vietnam: Strengthening Banking Sector Soundness and Development.
According to a press release by the Word Bank, the project aims to strengthen the soundness and resilience of the banking sector by enhancing the capacity of the State Bank of Vietnam (SBV) to address structural weaknesses in the banking system. Specifically, The World Bank will provide technical assistance to implement reforms laid out under the Banking Restructuring Plan 2016-2020 and the subsequent 2025 Banking Sector Strategy.
“A healthy banking sector, which is the largest segment of Vietnam’s financial system, is fundamental to the country’s sustainable economic growth,” said Ousmane Dione, the World Bank Country Director for Vietnam. “By bringing in world-class expertise in banking sector development, we hope that we can support SBV in successfully implementing the structural reforms they are committed to deliver.”
Challenges of the banking sector include issues of asset quality, weak capitalization and regulatory constraints that inhibit further investment in the sector. In addition, Vietnamese banks have higher overheads and provision more for non-performing loans. The sector is being revamped toward a more market-oriented sector, underpinned by international standards, and stronger financial stability monitoring.
The World Bank will work with SBV to strengthen the legal and regulatory framework for the banking sector, especially the Law on Credit Institutions and the implementation of the National Assembly Resolution No.42/2017/QH14 on settling bad debts. The project will also help the SBV better anticipate and withstand shocks, improve the supervisory capacity in line with international standards and good practices, support the development of a debt market, and build the capacity of the Vietnam Asset Management Company to properly manage underperforming assets.
This grant is part of the broader US$8 million Strengthening Banking Sector Soundness and Development Program provided by Swiss State Secretariat of Economic Affairs (SECO) and administrated by the World Bank.