ADB wants reform of Vietnam's banks, SOEs

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Vietnam's competitiveness is being held back by inefficiencies at state-owned enterprises and a shallow banking system, both of which require urgent reforms, the Asian Development Bank noted as it entered into a new partnership agreement with the country. 

According to the Manila-based lender, the Vietnamese banking system is constrained by insufficient capital, limited operational scale, and high credit risk.

"In addition to concerns about credit quality, this system elevates liquidity risk, as banks provide virtually all of the long-term credit available to commerce with funding provided by short-term deposits," it said.

The bank said that while there have been efforts to reform the SOE sector, many state enterprises are still "large in size, complex in operation, and weak in performance."

"Reform and restructuring of large SOEs will be crucial to reducing the dominance of inefficient state production, promoting private sector development, and supporting economic growth," ADB said.

The new four year partnership strategy will focus on supporting Vietnam's structural and policy reforms to promote sustainable growth and economic efficiency, the bank said. It will also provide assistance to other core sectors such as infrastructure, rural development and education in order to enhance the poor's economic opportunities and access to services.

"Vietnam has experienced rapid GDP growth and remarkable poverty reduction over the past two decades. There are still persisting pockets of poverty, however, and longer-term structural constraints continue to be a concern," Stephen P. Groff, ADB Vice-President for Operations in East Asia, Southeast Asia and the Pacific said in a statement Thursday.

ADB's planning figures suggest total lending for 2013-2015 could amount to US$2.6 billion from ordinary capital resources and $1.2 billion from concessional Asian Development Fund. Funding for technical assistance could reach $8 million annually.

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