Foreign competitors pose new threat to local banks

Effective January 1, foreign banks are allowed to provide the same banking and financial services as Vietnamese banks, including deposits and lending, payment services, leasing, foreign exchange services and brokerage, use of derivative tools, asset management, and financial consulting and information services.

For instance, foreign banks were limited during 2007-10 to receiving deposits from institutional and individual customers valued at no more than 650 per cent of registered capital. That cap is now removed.

Vietnam's banking market had many participants but products remained undiversified, so there were still a lot of areas in which banks could provide services, commented Citi Bank Vietnam general director Brett Krause.

GP Bank general director Pham Quyet Thang agreed that foreign banks could offer more diversified products and services that had been tested in global markets. Foreign banks' operations and processes could also help increase convenience for customers while better managing risks and lowering costs.

Most foreign banks have carefully developed credit policies that help minimise bad debt levels, which they generally maintain at less than 1.5 per cent of outstanding loans.

"Foreign banks offer more products and services and higher-profile staff," said Techcombank general director Nguyen Duc Vinh. "But Vietnamese banks have solid experience in this market and know the thoughts and behaviour of customers here."

Domestic banks already dominated key market segments, Vinh added, noting that many already had foreign strategic partners that have helped them bring governance and performance up to current standards.

But Sacombank general director Tran Xuan Huy predicted that the goal of foreign banks was to conquer and dominate the retail banking segment.

Vietnam currently has 73 foreign credit institutions and 48 representative offices, representing VND420 trillion ($20 billion) in total assets – or 11.25 per cent of the entire sector, according to the State Bank of Vietnam statistics.

Of these institutions, five are wholly-foreign invested, including HSBC, ANZ Bank, Standard Chartered, Shinhan Bank and Hong Leong Bank, representing an average charter capital of about 150 million each.

Meanwhile, 39 domestic institutions, together hold an 88.75-per-cent market share, but of which, just 10 have an average charter capital of VND5-15 trillion ($250-750 million) each.

To strengthen their position on the domestic market, many Vietnamese banks have been trying to expand their branch networks to access more customers, even in remote areas or regions with little potential for capital mobilisation.

"Such moves raise operation costs and reduce credit quality, leading to ineffective business results," said deputy head of the National Financial Supervisory Committee Le Xuan Nghia.

GP Bank'sThang suggested domestic banks develop appropriate and more effective strategies to survive, develop and compete with foreign banks, focusing on such basic elements as products and services, fee levels, human resources, scale and capital.

The State Bank of Vietnam has encouraged the upgrading of domestic banking standards through circulars No 13 and 19 which tighten risk management criteria, strictly regulate non-core operations by commercial banks, and increase capital management requirements.