To prepare for the massive deregulation of the financial sector under WTO regulations. State-owned commercial banks should increase their capital holdings to levels standard in the international arena, he said.

They must also quickly close the gap in technical capacity with that of regional rivals, said Thuy, adding that the central bank planned to accelerate the equitisation process of several State-owned banks.

The State Bank of Vietnam will create favourable conditions for banks to issue long-term bonds, which would facilitate the development of the capital market, he said.

The bank said it plans to select large State-owned banks and develop them under the multisectoral group model to operate in banking, insurance, investment, securities brokerage, and property management sectors.

The State Bank governor said joint-stock commercial banks must continue raising capital and maintain transparent business operations and financial reports, and should prepare for share issuances on the stock market without delay.

Thuy added that Vietnam's imminent accession to the WTO would motivate local bankers to enhance their competitiveness so as to avoid losing their footing in the domestic market.

"With WTO membership, we will have to open the financial and banking service markets to foreign credit institutes and banks, so the competitive pressure will definitely be mounting on domestic commercial banks," Thuy said.

The greatest disadvantage to commercial banks in the course of integration is that they are still in the early stages of development in terms of enhancing market capacity, applying technology, improving management, and have limited experience in raising capital, he said.

With a combined chartered capital among State-owned commercial banks reaching just VND21tril, total outstanding loans now account for only 55% of gross domestic product, far lower than the average 80% among other banks in the region.

Chartered capital among each State-owned banks now stands at between US$200-250mil, while that of joint stock banks is even more modest, averaging VND300bil ($18.7mil), according to the State Bank.

Another problem faced by the domestic banking sector pertains to operational quality. Credit activities remain the major income spinner for nation's domestic banks, while foreign banks are very active in providing banking services, said the governor.

Besides lacking service products, many domestic banks have not yet applied internationally-recognised standards of management, Thuy added.