Difficulties for local banks are opportunities for foreign banks
The assets and outstanding loans of foreign bank branches and joint venture banks reached their highest levels in the first six months of 2008.
While local banks are continuing to deal with a lot of difficulties caused by the tightened monetary policies, foreign banks are making big leaps to conquer the retail banking market. The difficulties for local banks really are tremendous opportunities for foreign banks.
While domestic banks have been bogged down in real estate and securities loans since 2007, foreign banks have avoided the troubles (they have only used a part of their capital to purchase government bonds with the risk of nearly 0%).
That explains why in the first half of 2008, while most domestic banks had to struggle with difficulties in capital sources, interest rates and bad debts, foreign banks with high liquidity and profuse capital recorded high growth rates in many sectors.
By the end of June 2008, foreign bank branches and joint venture banks had gained the growth rates of 33% for assets and 50% for liabilities compared to the end of 2007, while the average growth rates of the whole banking system were 8% and 20% respectively. Foreign bank branches and joint venture banks now just account for 9.3% of total outstanding loans, both in VND and US$, but account for 29.5% of total outstanding loans in dollars of the whole banking system.
According to the State Bank Credit Information Centre, the operations of foreign-invested banks in Vietnam are much better than domestic banks’ as their subprime outstanding loans are very low.
In the past, foreign-invested banks focused on providing services to foreign direct investors (clients in their home countries which had investment activities in Vietnam). However, there has been an obvious change in the banks’ operations as they are now eyeing the domestic retail market, hitherto dominated by domestic banks.
A lot of foreign-invested banks now have begun providing services for small- and medium-size Vietnamese enterprises, giving credit to Vietnamese households and private-run big companies. HSBC, ANZ and Standard Chartered have been the pioneers in these business fields.
Previously, Vietnamese clients thought that they would not be able to access foreign banks’ services because they thought that with global brand names, foreign banks were only interested in big clients (state-owned general corporations and 100% foreign-owned enterprises).
However, Vietnam is a potential retail banking market with 85mil people. Foreign banks have been designing a lot of banking products suitable for Vietnamese individuals and enterprises.
Foreign banks now have a lot of advantages to lure clients – Vietnamese enterprises which have been making profit but cannot get credit from local banks due to local banks’ policy on limiting credit.
In the first half of the year, most domestic banks postponed plans to expand networks due to financial difficulties, while foreign banks tried to enlarge their networks. Standard Chartered opened a branch and launched retail banking services on July 1, 2008. ANZ plans to open four more transaction offices by the end of the year, and some more branches in Hanoi and HCM City thereafter.
With global prestige and strong financial capability, foreign banks will surely become redoubtable rivals of domestic banks in the near future.
VNN
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