With the market-opening itinerary of seven years, competition in the banking market of Vietnam will be very fierce as many foreign banks want to join the market.

According to the head of Vietnam’s WTO negotiation mission, Luong Van Tu, when Vietnam integrates into the global trade playground, of 12 service fields, finance and banking is one that particularly must raise its management capability.

Foreign banks are coming 

According to statistics of the State Bank of Vietnam (SBV), foreign banks have come to Vietnam in the following forms: branch (34), joint venture (4), and representative offices (40 from 10 countries mainly based in Hanoi or HCM City). Most of the foreign banks operating in Vietnam are in the top 1,000 banks of the world.

Fast growth, earning profits and deep penetration into the local market is the best way to describe the situation of foreign banks in Vietnam.

Recently, the Hong Kong and Shanghai Banking Corporation (HSBC), the largest foreign bank in Vietnam, bought 10% of chartered capital of the Technology and Commercial Bank of Vietnam (Techcombank) to become Techcombank’s strategic investor. Previously, ANZ bought stocks of the Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Standard Chartered purchased shares of the Asia Commercial Bank (ACB), and OCBC Singapore bought shares of VPBank. 

This trend is continuing as some other foreign banks have also expressed their plans to buy shares of Vietnamese commercial joint stock banks, namely Citibank with East Asia Bank.

Notably, foreign financial firms have also expressed their interest in establishing wholly foreign-owned financial companies in Vietnam. The “marriage” between local banks and foreign banks, according to experts, is a clever maneuver by foreign banks to get their foothold on the fertile land that domestic banks are holding.

By late 2005, the market share of foreign banks in terms of outstanding debt was more than 9%, up nearly 1% compared to 2004. The total outstanding debt balance of all foreign banks in Vietnam grew by nearly 30%, totaling VND49,000 billion. Overdue debt ratio fell from over 0.1% to 0.06%. Their deposit capital also increased by more than 20%, with corporate clients accounting for more than 70%.

Should local banks worry?

Dr. Le Xuan Nghia, Head of the SBV’s Development Strategy Department, said that the biggest challenge for Vietnamese commercial banks when Vietnam joins the WTO will be the increasing competition pressure in the local market. 

The weakness of local commercial banks is their modest financial scale (averaging from $20 to 250 million); high percentage of bad debt under international accounting standards; low minimum capital safety index; poor capability in increasing capital and settling bad debts. In addition, their services are still simple.

As a member of the WTO, Vietnam will not be allowed to restrict the number of banking service providers, the total of transaction value of banking services, the number of banking services as well as the number of workers at banks.

“There will surely be a flow of high-grade and professional human resources from local to foreign banks because the need for human resources grows by at least 50% per year,” said Le Dac Son, General Director of VPBank. 

The best way to keep employees, according to Mr Son, is for local banks to prepare preventive human resources. 

The opening of the local financial market will heighten the market risks in terms of price, interest rate, and exchange rate. Domestic banks will have to face risks of crisis, the impacts from financial and economic shocks in the region and the world, the lost of advantages associated with client and distribution. 

A challenge that local commercial banks must solve themselves is part of their strategic customers, which are under the protection of the State, can make higher risks on the operations of those banks in case they operate poorly.

Source: Tien Phong