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Domestic banks vie for lion’s share of market
Two years after Vietnam joined the World Trade Organisation (WTO), the presence of foreign banks, their branches and non-banking credit organisations has testified to the fact that the country’s capital market is increasingly attractive to international business.
More foreign banks
Currently, five foreign banks have been licensed to operate in Vietnam, and they are now treated the same as domestic ones under the country’s commitments to the WTO. The Hong Kong Shanghai Bank Corporation (HSBC) is the first to provide services beginning in the first days of 2009.
Among the five banks, Shinsan Bank Vietnam of the Republic of Korea and Hong Leong Bank Vietnam of Malaysia are completely new to Vietnamese people. The last three, HSBC, ANZ and Standard Chartered, have been known in the country for years.
According to the State Bank of Vietnam (SBV), although the ratio of bad debts run up by foreign banks and credit organisations increased slightly compared to 2007, their pre-tax profit hit VND1,418 billion.
The figure is rather small if compared to the number of foreign credit organisations in Vietnam. But this constitutes remarkable phenomenon, as most of these banks and organisations have entered Vietnam after the country officially joined the WTO on January 11, 2007. Normally, newly established banks have to pour investment into expanding their business network and promoting their image, lessening profits in the early days of operation.
In 2008, foreign banks did try to expand operations in Vietnam. Between January- October, the total capital they mobilised increased by 1.5 times compared to the whole figure recorded in 2007. And yet, they still managed to be on a roll.
However, the story of profit is just a small part of the competition between foreign and domestic banks which is expected to be fiercer in 2009 as foreign banks operate on a level playing field in Vietnam instead of only being allowed to open branches as in the previous years.
Big worry
SBV statistics show that the scale of capital for Vietnamese banks is rather small. The Agriculture and Rural Development Bank (Agribank), the biggest in the country, has charter capital of VND11 trillion (US$650 million), which is low compared to others in the Asian region. Less than 10 out of nearly 40 commercial banks have capital of more than US$200 million (VND3,400 billion) and only a few have developed Core Banking services.
Meanwhile, HSBC Vietnam has a charter capital of VND3,000 billion, enabling it to operate until the end of 2010 without registering for an increase in capital as required by the SBV. This does not include the powerful financial capacity of its parent bank overseas.
In addition, Vietnamese people prefer foreign banks to domestic ones because of the convenient services they offer. Although it has only a small space for transactions in Hanoi, the ANZ bank branch on Ly Thai To street is crowded with clients who use not only domestic but also international payment services. This is an advantage for foreign banks.
However, experts say this does not mean domestic banks will lose out to their foreign rivals in 2009. Last year, Vietnamese banks worked hard to brace themselves for competition from outside. Commercial banks teamed up to offer integrated ATM services at all machines, regardless of bank affiliation.
Despite the negative effects of the national and global economic slowdown, domestic banks continue to expand operations by establishing new branches. The Asian Commercial Bank (ACB) opened 185 branches and transaction offices, while the Saigon Commercial Bank (Sacombank) inaugurated tens of branches, bringing its total presence across the country to 244. It also opened a branch in Laos and a representative office in China.
Domestic banks also increased their charter capital. To date, ACB has increased its capital to VND6,000 billion, Eximbank to VND7,000 billion and Sacombank to more than VND5,000 billion.
According to former SBV governor Cao Si Kiem, competition between foreign and domestic banks is unavoidable during the integration process. At first, foreign banks will find it rather difficult to outdo their Vietnamese rivals because they do not have regular clients and get familiar with the legal system. Once they solve these problems, they will soon become true rivals of domestic banks. Therefore, Mr Kiem says domestic banks will likely lose out in the long run unless they increase their financial capacity or draw up more suitable development strategies.
To date, the State Bank of Vietnam has licensed 33 foreign banks to open branches, five to establish wholly-foreign invested banks, five to establish joint venture banks and nine non-banking credit organisations in Vietnam.
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