Prudential Supervision, Banking and Economic Progress: Implementation of Risk Management Procedures in Joint Stock Banks in Vietnam

Abstract

Classical economic theory suggests that for economic development, a nation needs people, resources and capital. In populous and resource-rich Southeast Asia, capital for investment is the critical ingredient for the transition of underdeveloped nations to more prosperous states. Sound prudential supervision, combining credit, market and operational risk management best practices, can collectively provide adequate levels of investment to sustain rapid economic growth, to improve living standards, and to begin tackling major systemic, infrastructure and environmental challenge. However, in Southeast Asian Transition Economies (SEATE’s), especially Vietnam, these nations remain dependent on foreign capital because reforms of the state-dominated banking system have further to go. This study, undertaken in Vietnam in the 2001-08 period, takes a three step process of reviewing Vietnamese legislation and local best practices at privately held “Joint Stock Banks”, comparisons to best practices such as those promulgated by the Bank for International Settlements and in leading banking journals, followed by a data collection effort involving semi-structured interviews from 28 joint stock bank senior managers in Vietnam from 15 joint stock banking institutions.