Banking, transition and financial reforms: a long-term analysis of Vietnam

Abstract

We analyse the effectiveness of financial reforms in the transition economy of Vietnam, from the early years until the present day. Our focus is on the changes and the determinants of banks cost efficiency, which was widely criticised and was the focus of the reforms package. We find that regulatory changes impact favourably the development of the sector. Technological and efficiency improvements characterise the period of analysis, helped by better capitalization and increased diversification. Any technological spill-overs from foreign banks are quickly transferred to the domestic market, and larger domestic banks rapidly become the best performing institutions, in support of the more recent liberalization and privatization policies.