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Foreign banks to give domestic firms a run for their money
Dr. Nguyen Minh Phong at the Ha Noi Socio-Economic Development and Research Institute spoke to Thoi Bao Ngan Hang (Banking Times) about competition between local and foreign banks.
What do you think about increasing operations of wholly foreign-invested banks in Viet Nam?
Under the WTO commitments on banking, effective since April 1, 2007, foreign banks are allowed to operate in Viet Nam. They can be representative offices, affiliates of foreign banks, joint-venture banks or wholly foreign-invested banks.
Wholly foreign-invested banks have many advantages, and it is therefore not unusual to see a wave of wholly foreign-invested banks stepping up operations recently.
Viet Nam is also an attractive destination for foreign investors. The global economic crisis is increasingly singling Viet Nam out as a country with comparative advantages, particularly in political stability and economic development potential.
Foreign Direct Investment (FDI) is one indicator. Viet Nam is among the top ten countries and territories attracting FDI in the world.
The participation of foreign banks has helped improve Viet Nam’s financial market, giving people and the business community opportunities to enjoy financial services of international quality.
But this is also putting more pressure on the financial market.
I think the recent speeding up of foreign bank operations is merely an initial step. The competition will only start by the end of this year, when mother banks abroad gradually recover from the financial crisis.
It seems that foreign banks have more advantages, while the only advantage for local banks is being on "home turf". What do you think about this?
It’s true. Foreign banks can gain the upper hand over local ones in terms of history, experience, financial potential, technology, human resources, understanding partners and international business rules.
These advantages will allow them to provide competitive products. Moreover, by employing Vietnamese bankers, foreign banks will become experts in the local market.
However, local banks also possess some advantages. Firstly, they have outstretched branches that can offer cheap services to customers, especially small- and medium-sized ones. This is also a tool to create joint ventures with foreign banks to mutually allocate services.
Another advantage is that Vietnamese customers find it easier to do business with Vietnamese banks.
And local banks are better at finding information about domestic enterprises and getting a better hold on the psychology and business traits of Vietnamese people than foreign banks. With such advantages, they can introduce appropriate products.
Which parts of the market will be the most competitive?
Each bank has its own strategy, and it also depends on the market and their familiar customers.
Yet, by and large, foreign banks will focus on such areas as the following: international payments, worldwide money transfers and modern banking services, targeting foreign investors and those customers in the middle and high classes.
Foreign banks will speed up joint ventures with other businesses to consume products and services. They can lend money to customers to buy cars and houses by joining with auto companies and housing investors.
What do local banks have to do to fend off the competition?
They should know their capacities. First, by concentrating on products and parts of market that they are good at, and second, by expanding and developing more new, modern products that suit their capacities. They must improve the quality of their products and services, especially in procedures and attitudes towards customers.
Local banks should take initiative in associating with other banks and partners to develop and supplement their shortcomings to each other.
It’s essential to work out a strategy to restructure and raise management ability and technologies in an attempt to raise competitiveness.
Local banks should also associate with foreign banks to increase their strengths.
For the part of the State, it must have common guidelines on orientation, supervision and support for local banks during this process of restructuring and raising competitiveness.
VietNamNet, VietNamNews
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