Foreign banks take stronger footing in Viet Nam

Saturday, May 17, 2008
Business operation of foreign banks in Viet Nam now is under many regulations that although have been freed up to a certain extent in line with Vietnam's WTO commitments. Due to this, these banks only account for a small market share in Viet Nam's banking sector. However, once more time, a lot of banking specialists gave warnings over domestic banks that they [banks] should improve their financial strength, administration and technology to prepare for the forthcoming fierce competition.

After over on year from entering WTO, the financial dept of Viet Nam's banking system has been improved considerably. In 2006, the ratio of total deposits on GDP was 78.4%, rising 12% year-on-year. The figure was increased to 95.4% last year. In addition, total chartered capital of banks in 2007 soared by 54% against the previous year.

Regarding business operation, the unpaid debt ratio declined from 5% in 2005 down to 3.5% in 2006 and below 3% in 2007. Most commercial banks reached the capital adequacy ratio of 8%.

At present, with the nationwide network, local commercial banks still account for over 90% market share but like a previous survey, up to 45% of customers will shift to borrow loans from foreign banks, 50% will choose services of foreign banks and 50% will send money at foreign banks.

Up to now, foreign banks' branches in Viet Nam only make up 13% market share of capital mobilisation and about 9% of lending market. According to a SBV's report released last week, total asset of foreign banks' branches by the end of 2008 reached 215 trillion dong and their total pre-tax profit gained 2.4 trillion dong with the growth of lending and deposit market share of 0.4% against 2006. The report also predicted that the above figures will continue rising over next years when Vietnam is step by step opening the door of banking market under WTO commitments. Accordingly, within five years from becoming the official member of WTO, Vietnam can restrict the right of receiving dong deposits of a foreign bank branch. From January 1, 2008, the deposit limit that a foreign bank branch is allowed to receive is 800% of its authorised capital. However, the ratio will be extended to 900% in 2009, 1,000% in 2010 and abolished from 2011.

One financer said that many foreign banks' branches now apply a lower lending rate than domestic lenders to expand market share.

Factually, because State Bank of Viet Nam ruled that foreign bank branches are not allowed to receive dong deposits from entities that are not that bank's borrowers, so the banks' market share expansion by boosting lending is normal.

According to specialists, branches of foreign banks are playing a very important role in Viet Nam's foreign currency market. Most of foreign indirect capital (FII) flow into Viet Nam is through the branches. Moreover, these branches can raise US dollar in foreign countries with a lower interest rate than in Viet Nam. After that they re-lend to Vietnamese banks.

Foreign banks have another advantage of non-credit services, which is also the disadvantage of local banks. Particularly, HSBC's revenue of international payment accounts for one third of its total figure. (DTCK)