Talking about the financial system, Victoria Kwakwa, World Bank country director for Viet Nam, praised the country for impressive results in the past decade.— Photo anninhthudo

HA NOI (Biz Hub)— It is imperative for Viet Nam to build an effective financial supervision system that has the ability to provide analysis and timely warnings for the Government.

Deputy Prime Minister Vu Van Ninh made the statement at an international conference on strengthening the financial system held in Ha Noi yesterday.

Ninh said effectiveness and sustainability of the financial system has directly affected the world's economy, as well as each country, because it has been considered to be a lifeline for economies.

"As for Viet Nam, the financial and banking sector has rapidly developed and achieved encouraging results," he said.

However, he added that the financial system has faced risks of decreasing quality of assets, increasing bad debts and low liquidity, as it was in the initial period of development.

"Especially, after the world financial crisis in 2007-08 and economic slowdown, the shortcomings have become more clear," he said.

The deputy PM also said the country's financial system has improved after two years of restructuring.

The improvement has made liquidity more stable and prevented risks of collapse. In addition, Viet Nam's stock market has become one of 10 fastest growing markets in the world.

He said the country was still in need of building a sound, developed and sustainable financial system, as faces difficulties in the banking sector, stock market and cross-ownership.

Talking about the financial system, Victoria Kwakwa, World Bank country director for Viet Nam, praised the country for impressive results in the past decade.

The transparent financial market has brought about several new financial tools for Viet Nam, she said, adding that such a market has become an important factor for the country to achieve a new position as a middle-income country.

She added that Viet Nam should clarify a suitable role for the State in its financial system, such as when the Government played a vital role in stabilising the economy during the crisis.

The deputy PM also said the country's financial system has improved after two years of restructuring.—VNS Photo

She suggested that Viet Nam should make lending transparent in difficult times, with participation from financial institutions.

The Government should also ensure the effectiveness of mortgage assets, she added.

Sharing these ideas, the head of the Party Central Committee's Economic Commission, Vuong Dinh Hue, said the country's financial strategy for the years leading up to 2020 is targeted to build a transparent financial system, facilitating economic growth along with the restructuring process.

Hue said Viet Nam was required to implement solutions, including improving national financial resources, capital distribution, restructuring State-owned enterprises, developing financial markets and promoting integration activities to the world's financial markets.

Roberto Rocha, senior adviser from WB, said Viet Nam's financial system has endured the global crisis, but its soundness needed to be strengthened.

The system exposed a decline in profitability in indicators, high non-performance loans (NPLs) ratios, a weak credit response to supportive monetary policies and GDP growth below its potential.

He added that the financial system was excessively bank-based, while bank governance and incentives remain weak.

The Government needs to address two fundamental challenges, including the effective resolution of the stock of NPLs and the efficiency of the new flows of finance.

Do Thien Anh Tuan, from Fulbright Economics Teaching Programme, proposed that Viet Nam was applying the institutional supervisory approach, but tended to switch into an integrated model.

Tuan emphasised that the supervisory approach was not as important as the establishment of a foundation of supervision and policy co-ordination.

Meanwhile, Truong Thanh Phuoc, vice chairman of the National Financial Supervisory Commission, said Viet Nam should have a clear framework to handle system risks, maintaining financial stability, while establishing a solid framework to deal with financial disturbances. — VNS