Improvement in quantity and quality

 

 

The year 2007 saw the establishment of many branches and offices of commercial banks nationwide. State-owned commercial banks opened, on average, 10 new branches and upgraded 20 branches from the second grade to the first grade. Nine out of 11 rural joint stock commercial banks were upgraded to urban ones. Four new joint stock commercial banks were approved in principle for operation, including FPT Bank, PetroVietnam Bank, Bao Viet Bank and United Viet Bank. Recently, the State Bank of Vietnam approved the establishment of five more joint stock banks, including Energy Bank, Asia Bank for Foreign Trade, Vietnam Star Bank, Thuong Tin Indochina Bank and Bao Tin Bank.

 

In addition, a series of new technology and products of Vietnamese commercial banks were applied. The Bank for Foreign Trade Vietnam (VCB) joined hands with 14 joint stock commercial banks and two other media companies to set up Smartlink payment system. The card coalition system covers more than 2,000 ATMs and over 6,000 points of sales (POS). This is considered the pilot model of setting up a national payment card union in Vietnam. The Bank for Investment and Development of Vietnam (BIDV) conducted a promotional programme for POS payment cards to raise the proportion of non-cash payment. Industrial and Commercial Bank (ICB) is constructing an infrastructure system for SONA service network which will ensure security for customers when using electronic banking services provided by ICB. The Bank for Social Policies has completed the project of payment system integration inside and outside the province, after nearly three years of successfully implementing the internal electronic money transfer system.

 

The State Bank of Vietnam (SBV) has been following the industry development plan to 2010 and 2020 in pursuance to Politburo Conclusion No. 191 dated 01 September of 2005 and Decision No. 112/TTg dated 24 May of 2006 of the Prime Minister on the development orientation of Vietnam’s banking sector. Accordingly, 13 big projects will be put into research and implementation, in which the project building terms for the Law on Banking is top priority. In 2007, the country carried out some important steps, such as summarising old laws, building framework, organising various conferences, referring to international consultants and sponsors on the content of new laws, and making preliminary drafts of new laws to complete new regulations on the banking sector as soon as possible.

 

In 2007, domestic banks introduced a lot of new and attractive products and services, especially joint stock commercial banks, considered the most dynamic in the Vietnamese banking system. For example, Asia Commercial Joint Stock Bank (ACB) introduced a programme named “Immediate Loans, Big Win”, Technological and Commercial Joint Stock Bank (Techcombank) opened “Deposits at Techcombank, winning Mercedes” and it also opened account management services for securities investors in partnership with securities companies. This kind of service is a new potential product which is expected to start a new administrative model.

 

 

A series of Vietnamese banks and branches of foreign banks seeking approval to be set up has indicated the strong attractiveness of the banking sector in Vietnam. This has been proved by impressive business figures.

 

In the last two years, profits of many banks have exceeded the yearly targets. In 2007, Asia Commercial Joint Stock Bank (ACB) earned over VND1,871 billion (US$116.9 million) in pre-tax profit. Saigon Thuong Tin Commercial Joint Stock Bank obtained over VND1,400 billion in profit, Vietnam Export Import Commercial Bank (Eximbank) over VND700 billion. Vietnam International Commercial Joint Stock Bank (VIB Bank) raked in about VND450 billion in profit, increasing 2.2 times on year and finishing 128.57 per cent of the yearly target. Technological and Commercial Joint Stock Bank (Techcombank) gained estimated VND700 billion, 112 per cent of the 2007 plan.

 

In 2007 alone, An Binh Commercial Bank (ABBANK) opened 40 more branches and transaction offices, Sacombank more than 60 transaction points. Techcombank also launched 40 branches and transaction offices, bringing its total number to 120 across 23 provinces and cities nationwide. The bank expects to expand its network to nearly 200 offices in 2008, with 40 more transaction offices and seven branches.

Local banks focused not only on expanding their network, but also increasing their chartered capital. Nam A Commercial Joint Stock Bank (NamA Bank) received approval from the State Bank of Vietnam to increase its equity to VND1,350 billion from the current VND575 billion. Earlier in early 2007, this bank had planned to boost its capital to VND2,000 billion. ABBANK, after a long time of seeking permission from SBV on its plan to scale up its registered capital to VND5,000 billion, had its capital increased to VND2,300 billion in the third quarter of 2007. VIB Bank, Habubank and numerous other banks have also been racing to scale up their equity to trillions of dong.

 

 

For example, nine banks who have been permitted to operate have registered capital ranging from VND1,000 billion to VND5,000 billion. These banks are under Decree 141/CP on the legal equity of credit institutions, so they have hurried to scale up capital to over VND1,000 billion in late 2007 and over VND3,000 billion by the end of 2008. Meanwhile, registered capital at existing commercial banks has, in many cases, still not reached over VND1,000 billion. So, it is more difficult for them to raise their competitiveness when more and more new banks are established, excluding wholly foreign-invested banks.

 

In addition, new banks will quickly attract human resources from old banks, leading to brain drain and leaving established banks lacking talented staff. In fact, Vietnamese commercial banks have faced a crisis in human resources over the past two years, as new banks are set up. The reason is that banks have expanded their operation scale much faster than the supply of human resources has grown.

 

Apart from the targets of raising funds for scale expansion and improvement of financial capacity, many banks have taken advantage of opportunities to issues shares when the stock market is up for their plans to raise equity. However, no banks dared to issue shares for equity increase in the first two quarters, but waited until the third quarter as planned at the beginning of 2007 to keep prestige with shareholders. Small joint stock banks said their moves to increase capital are to meet the SBV requirement that equity of commercial banks to reach VND1,000 billion in 2008 and to VND3,000 billion in 2010.

 

According to a banker, under the plan to raise equity, banks will not only face stagnation of capital, but also fail to attract shareholders (even existing shareholders), because “King” shares in the banking sector are losing their liquidity on the stock market. Many investors have to accept losses and withdraw capital in banking shares (even banks preparing to issue preferential shares to raise capital) to settle their debts at banks before the deadline of securities mortgage loans.

 

 

I think the year 2007 was only the start of overheated competition in the banking sector, which is forecast to last and escalate in the coming years.

Recent activities of foreign-owned banks in Vietnam after Vietnam joined the World Trade Organisation, including providing real estate loans (HSBC), setting up payment network via Post Savings Service Company (Citibank) or opening ten more branches in 2008 (ANZ), showed that they are preparing for further penetration into the country. The competition will not be as fierce as expected by many people, but still strong and challenging.

 

 

The competition in 2007 was just the beginning. From 2008 until 2012, competition will be exaggerated in line with the sharp increase in the number of foreign-invested banks and new domestic banks. They will fight to gain market share and other business fields. Banks that quickly equip themselves with advanced technology, human resources and good risk management will stand firm. Weak banks will naturally be merged.

 

Different banks have different strengths. Newly-founded banks have shown off their strong financial capacity, but they lack a widespread network and experience. In order to succeed in providing services for small and medium-sized enterprises or loans for personal consumption, banks must have a wide network and a good risk management system, but some banks do not meet this requirement. Meanwhile, experienced banks are well able to provide retailing services. Other banks, while not leading the retailing field, can focus their strengths on selling products with high added value, such as derivative products, consultancy products and mergers (in investment banking).

 

2008 and 2009 will see the classification of banks, each identifying their own strengths. Over the past years, the banking sector has seen significant growth (as multi-purpose service banks) thanks to the country’s general high economic growth. Banks can develop and provide any product and service, as the market is not yet saturated with financial products. In 2008 and 2009, each bank has to select their own path to provide special products and services for clients, because many products will reach saturation level.