Local and Foreign Banks Sharing Market and Profit

Foreign bank penetration into Vietnam is worrying locals. However, most banking experts believe this is the time for the domestic and foreign banking systems to assist each other to mutually gaining markets and profits.

 

First foreign bank in VietnamHSBC Group is promoting the establishment of a subsidiary in Vietnam. If approved, this will be the first wholly foreign-owned bank in Vietnam, said HSBC Vietnam CEO Alain Cany at the 2^nd Vietnam Investment Forum in Hanoi on March 19 and 20. According to Mr Alain, with the setup of its wholly foreign-owned bank HSBC hopes to open 5-10 branches in Vietnam in the next four or five years. Together with the plan to open subsidiary banks, HSBC will also double its current capital contribution in Vietnam Technological and Commercial Bank (Techcombank) immediately after the Government raises the limit on foreign ownership of Vietnamese banks to 20 per cent, from the current 10 per cent. HSBC spent US$85 million to buy 10 per cent of Techcombank stakes, triple its investment of US$27 million in 2005.

Mr Phung Duc Ke, Deputy Governor of the State Bank of Vietnam (SBV) said, under World Trade Organisation (WTO) entry commitments, Vietnam will allow wholly foreign-owned banks in the country from April 1, 2007, which will receive equal treatments with local banks. To receive licence for establishing a subsidiary bank, the parent bank must have at least US$10 billion asset value in the previous year’s figures. If the subsidiary bank wants to open branches, the parent bank must have a total asset value of over US$20 billion and a minimum of US$15 million for each branch. Foreign banks are allowed to keep at most 30 per cent stake in Vietnamese banks. Depository services will be loosened, under the present roadmap and will be totally free from obstacles after 2011.

 

Hard-to-settle bad debtsAccording to banking specialists, banks will expand quickly in the coming time. “When foreign banks flock into Vietnam, they will unify and strengthen the banking system,” Mr Ly Xuan Hai, CEO of Asian Commercial Bank, said. Mr Nguyen Quang Trung, Deputy General Director of Sacombank, added that Vietnamese banks are at a low starting point and are in need of further cooperation with foreign banks to exchange technology, human resources and expand to other markets.

 

The Vietnamese banking system’s biggest current issues, according to experts, are how to manage risks, eliminate bad debts and increase liquidity. “Presently, risk management at commercial banks has failed to keep pace with development. We lack measures to deal with risks. This is very dangerous,” Hai said. However, he added that the issue will be resolved in the next five years and there will be insurance tools for risk management.

 

According to Citibank representatives, to manage risk successfully, banks need to know their positions on the market for better management and administration. The exact forecast and resolution of risks will help avoid further risk. So far, Vietnam has not exerted the effort to resolve this issue.