Opening markets, enhancing competitiveness

Currently, Viet Nam allows foreign banks to own a maximum of 49% stake in the domestic enterprises and to establish their branches. Meanwhile, foreign stock companies are only allowed to open representative offices.

As shown in signed agreements between Viet Nam and the US, from April 1, 2007, US banks and banks of other countries will be able to set up 100%- foreign- owned branches in Viet Nam to provide services such as deposit accounts and issuing credit cards.

When Viet Nam enters WTO, the branches and representative offices of foreign banks established in the country will receive same national treatments (NTs) as the local beneficiaries.

Meanwhile, it was previously agreed in the Bilateral Trade Agreement between Viet Nam and the US that until 2010 US banks are not allowed to launch their 100%-foreign-funded branches in Viet Nam.

Mr. Thuy said, "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."

However, he added that Viet Nam’s imminent accession to the WTO would motivate local bankers to develop more stably and rapidly.

What should be done to avoid losing footing in domestic market?

Obviously, joining the WTO will bring Vietnam both opportunities and challenges. The greatest disadvantage to Vietnamese banks in the course of integration is that they are still in the early stages of development in terms of market development capacity, limited experience in capital mobilization and improving inefficient management, said Mr. Thuy.

With a combined chartered capital among state-owned commercial banks reaching just VND21 trillion, total outstanding loans now account for only 55% of the gross domestic product (GDP), far lower than the average 80% among other banks in the region.

Chartered capital among each State-owned banks now stands at between US$200-250 million, while that of joint stock banks is even more modest, averaging VND300 billion (US$18.7 million), 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.

For these reasons, enhancing financial capacity and maintaining credit ratings are key solutions if they want to survive competition from international banks when the nation accedes into the WTO.

As showed in the Baking Development Plan for 2010-2020, recently approved by the Prime Minister, the sector will carry out practical measures such as raising capital, aiming at increasing capital holdings to levels standard in the international arena and quickly close the gap in technical and management capacity with that of regional rivals.

Currently, the Bank for Foreign Trade of Viet Nam (Vietcombank) and the Bank for Investment and Development of Viet Nam (BIDV) are issuing bonds for raising capital, effectuating the national plan. Probably, the Eastern Asia Commercial Bank (EAB) will also start to issue its bond in the near future, said Mr. Thuy.

Besides, the State Bank of Viet Nam recently announced it plans to select some large state-owned banks and develop them under the multi-sectoral group model to operate in banking, insurance, investment, securities brokerage, and property management sectors.

As for joint-stock commercial banks, the State Bank governor said they must actively decide when and how to raise their capital and maintain transparent business operations, financial reports, and should prepare for share issuances on the stock market without delay.

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When Viet Nam enters WTO, the nation’s financial landscape would experience a fundamental shift once foreign institutions are allowed to enter the market, marked by increasing acquisitions of shares of domestic banks and mergers among small banks. Especially, the establishment of 100% foreign-owned banks in the domestic market will strongly restructure the financial market share. In the short term, the sector will gradually extend the limitation of foreigners’ participation in holding Vietnamese enterprises’ shares in accordance with international agreements. Then, it must loosen regulations on the ratio of foreign banks’ financial contribution, services, transaction value, etc.

By N.Q – Translated by Trong Khuong

Source: Saigon giai phong times