New US Banking Competition

New US Banking Competition

Under the terms of the Vietnam-US Bilateral Trade Agreement, Vietnam is implementing a nine-year roadmap for opening the door of its banking sector to American banks. Accordingly, American service providers (except financial leasing banks and firms) are allowed to operate in Vietnam in the form of joint ventures until this December. From December 2010, they will be allowed to set up 100 per cent US-owned banks in Vietnam.

US banks to provide sub-services

American financial service providers are allowed to provide 12 banking sub-services (see list below) according to a seven-point roadmap, which identifies the level of involvement and legal procedures of American banks for banking services in Vietnam. This also implies a requirement for a reduction in protection measures for Vietnamese commercial banks. Vietnam must gradually remove restrictions for American banks, allowing them to become involved in all banking activities in the country. Some services are similar to those currently provided by Vietnamese commercial banks. These include international payments, project investment and commercial financing. Also, American banks are allowed to provide new services not yet available in Vietnam, such as monetary intermediary services, and derivative products. John Smith, the World Bank Working Group expert on Capital Markets, said that American banks hold great advantages in technology and management expertise over Vietnamese commercial banks. Therefore, competitive pressure on Vietnam’s commercial banks will increase as American banks gradually enter the sector, especially when regulations regarding restrictions on deposits in Vietnam dong, credit card issuance and automated teller machines (ATMs) are gradually lifted. Consequently, Vietnam’s commercial bank market share will contract, especially in major cities and key economic regions. Also, the State Bank of Vietnam and its relevant agencies and ministries will face difficulties when American banks are allowed to join the securities trading business and clearing because Vietnam’s commercial banks are outclassed by their American rivals in providing services and diversified activities.

Competition in all fields

Competition in providing loans will become fiercer as foreign banks learn more about the Vietnamese market. Also, the legal environment will ensure that foreign banks will be able to settle risks in calling in loans, if necessary. Allowing foreign banks to join refinancing and rediscount activities in the three years after the Agreement takes effect will make up part of mobilising capital, which is limited by the roadmap. Foreign banks also have advantages in the delivery and quality of payment and money transfer services. As they develop their profile within the sector, these banks will attract a significant number of Vietnamese customers. Monetary business intermediary consulting services for enterprise development will also attract the attention of Vietnamese customers. To expand Vietnam’s banking sector, foreign banks will develop retail banking services and products. Under the bilateral trade agreement, American banks are not constrained as to their appearance. Accordingly, they can buy shares from Vietnam’s commercial banks and expand ATM networks, and promote their profile in Vietnam. Under the trade agreement, Vietnam is committed to implementing the first phase of its commitments by December this year, before its accession to the World Trade Organisation (WTO). This will act as a driving force for reform of the local banking sector, especially in the areas of improving management capability, developing safety regulations for the banking sector which meet international standards, and promotion of the financial market.

12 sub-services to be provided by American banks

·                Calling deposits from the public

·                Providing loans of all kinds, including consumer credits, mortgage credits, business contracts and other commercial transactions

·                Financial leasing

·                Money transfer, such as credit cards, travellers cheques and bank notes

·                Guarantee and liability

·                Monetary intermediary

·                Asset management, including cash, portfolio, pension fund management and other conservation services

·                Payment and settlement services for financial assets, including securities, financial derivatives and other payment tools

·                Providing and transmitting financial information and processing financial data and software products of other financial service providers

·                Intermediary consulting and other support financial services

·                Trading on their own accounts or accounts of customers at securities trading centres and over-the-counter (OTC) markets

·                Issuing all securities, including underwriting and offering, and providing other services relating to securities issuance

• Phuong Ha