Hanoi (VNS/VNA) - Domestic banks are expectedto face increasing competition, especially as European banks will be able toaccess the Vietnamese market when the European Union-Vietnam Free TradeAgreement (EVFTA) takes effect.

This information was released at the Top 10 most prestigiouscommercial banks in Vietnam in 2020 by Vietnam Report (VNR).

According to VNR, more than 96 percent of surveyed expertsand banks said one of their biggest challenges was the increasing trend of baddebts due to impacts of the COVID-19 pandemic after implementing debtrestructuring, extending and freezing.

With loans that were ineligible for debt restructuring, banksmust convert them into non-performing loans (NPLs) as prescribed, resulting inpressure of decreasing interest and provisioning, thereby reducing profits.

With debts that could be extended and restructured, thesecould be potential bad debts for commercial banks in the long term. If thehealth of the economy does not improve soon, banks would be at risk of losingcapital.

According to calculations by the State Bank of Vietnam, ifthe disease was controlled in the first quarter of this year, the NPL ratio ofthe on-balance sheet, debts sold to Vietnam Asset Management Company (VAMC) andclassified debt would be at 2.9-3.2 percent by the end of the second quarterand 2.6-3 percent at the end of the year.

The survey said although Vietnamese commercial joint stockbanks have maintained their positions, the competitive pressure has beenincreasing as the country opens its market.

In addition, the emergence and development of financialtechnology companies (fintech) and technology giants (big tech) in providingfinancial services are putting pressure on banks. Banking business is forecastto be increasingly difficult if they do not quickly catch up with technologytrends.

Although the banking industry has been at the forefront ofapplying information technology in operation and management, most banks havebuilt a digital transformation strategy to increase customer experience,addressing the growing needs of customers. Most Vietnamese banking systemsstill operate traditionally with their transaction offices and mostly digitiseinternal processes.

The decision to invest in infrastructure of technologysystems to meet changes in the current trend of shopping and consuming serviceshas been a problem for bank leaders as this is a big investment while theeffect is difficult to evaluate.

The survey said there are four biggest challenges inimplementing digital banking include network security risks, lack of policies,overlapping priorities and lack of skilled labourers.

Nearly a half of experts and banks in the survey also saidthe decreasing credit demand has been one of the challenges for the sector.

Due to the impact of COVID-19, although Vietnam has wellcontrolled the pandemic, the world is still experiencing outbreaks, affectingthe production and business situation of domestic enterprises. It was thereason that businesses still do not need to borrow new capital although lendinginterest rates have fallen sharply.

The pressure on capital raising on banks in 2020 is stillrelatively high, requiring them to have much higher equity capital than beforeto ensure effective risk management according to Basel II standards, especiallybanks with State capital. Profits of some banks declining in the context ofincreased risk of bad debt would significantly affect capital safety,increasing the pressure of raising chartered capital.

Vietnam Report said the key factors for the success of banksare human resources and technology. The digital revolution in the bankingsector has required staff to regularly update information and develop creativepolicies.

Top 10 most prestigious commercial banks in Vietnam in 2020:

    Joint Stock Commercial Bank for ForeignTrade Vietnam (Vietcombank)
    Vietnam Joint Stock Commercial Bank forIndustry and Trade (Vietinbank)
    Vietnam Technological and Commercial JointStock Bank (Techcombank)
     Bank for Investment and Developmentof Vietnam (BIDV)
    Vietnam Prosperity Joint Stock CommercialBank (VPBank)
    Military Commercial Joint Stock Bank(MBBank)
    Vietnam Bank for Agriculture and RuralDevelopment (Agribank)
    Asia Commercial Joint Stock Bank(ACB)  
    Tien Phong Commercial Joint Stock Bank(TPBank)
     HCM City Development Joint StockCommercial Bank./.