Foreign banks make beeline for Vietnam

HCM City (VNA) – The State Bank of Vietnam early this month approved in-principle Woori Bank’s proposal to set up a wholly-owned bank in the country.

The largest Republic of Korea’s bank in terms of consolidated assets as of the end of March has been told to apply for a licence.

Once it gets the licence, Woori expects to be a vehicle that will help expand Republic of Korea’s investment in Vietnam. It will also be the seventh wholly foreign-owned lender in the country after HSBC, Standard Chartered, ANZ, Republic of Korea’s Shinhan Bank and Malaysia’s Hong Leong Bank Berhad and Public Bank Berhad, with the last-named licensed earlier this year.

There are also branches of dozens of foreign banks.

The number of foreign banks, especially from ASEAN member countries, to invest in Vietnam has been increasing rapidly in recent years with the opening up of the banking sector as part of the Government’s commitment to international integration.

The number of foreign bank branches has gone up from 31 in 2006 to 50 now, and there are also representative offices of 50 banks and joint venture banks.

Market observers said that for long foreign lenders have sought to enter Vietnam as wholly foreign owned, but they were not allowed to do so.

They then had to buy stakes in local banks to become strategic shareholders, set up joint ventures with domestic banks or open branches or representative offices.

For instance, VietinBank has two foreign strategic shareholders - International Finance Corporation and Koyo Mitsubishi UFJ.

In 2011 Japan’s Mizuho Corporate Bank Ltd bought a 15 percent stake in Vietcombank to become a strategic shareholder.

But the opportunity for foreign banks to establish wholly-owned entities in Vietnam only arose when the banking sector was forced to restructure, which resulted in a sharp decrease in the number of banks from 33 in 2006 to 28 late last year.

This created conditions for foreign banks to expand their presence in what is a promising market.

Analysts have said that admittedly the presence of more foreign banks offers more alternatives to the public and has made the banking sector more competitive by ushering in improved management and greater transparency.

But the flipside, of course, is that domestic banks are in danger of losing market share or worse.

Foreign banks now have minor market shares - 5 percent of deposits and 15 percent of loans - but these are predicted to increase in the near future since the foreign lenders have now acquired better knowledge of the market and its demands to go with their deep pockets, high-quality, diverse products and efficient management.

The average size of Vietnam’s biggest banks is only 30-35 billion USD compared with 70 billion USD for major lenders in Thailand and Indonesia. Many banks in neighbouring countries also score double on the quality index that Vietnamese banks do.

The challenges Vietnamese banks face with the advent of their foreign rivals are that they would lose their advantages in retail banking, find it hard to compete in foreign exchange services and derivative products, and suffer from a brain drain as foreign banks, with their ability to pay higher salaries, poach the best and brightest.

Analysts said they should speed up the restructuring process to strengthen their financial capacity, improve their management, and change their income structure to fee-based rather than interest-based earnings.

They also said the lenders should explore ways to expand their investment abroad to exploit opportunities thrown up by international economic deals such as FATA, TPP and AEC.-VNA