The conclusion of the Vietnam-US bilateral negotiation on Vietnam’s accession to the World Trade Organisation (WTO) is nearly an assured ticket for its entry to the WTO by the end of this year. As for the banking sector, according to the Governor of the State Bank of Vietnam, this provides momentum to speed up competition to avoid a loss on the home market.
Banking opening: Increasing competition pressures
Under the agreements, when Vietnam becomes a full member of the WTO, service providers of the United States will have easier access to the Vietnamese market and will enjoy national treatment (NT) regulations in many fields.
At present, Vietnam allows foreign banks to hold a maximum stake of 49 per cent. Foreign banks are only allowed to set up branches in Vietnam while foreign securities firms are permitted to open representative offices in the country.
But according to the agreement between Vietnam and the US, from April 1, 2007, US banks and foreign banks will be allowed to set up wholly foreign-invested branches in Vietnam and are authorised to receive unlimited VND deposits from legal entities and to issue credit cards.
Like other Vietnamese legal entities, these branches and representative offices will enjoy non-discrimination principles (national treatment) immediately after Vietnam joins the WTO. In the mean time, according to the Vietnam-US Bilateral Trade Agreement (BTA), US banks are only permitted to set up 100 per cent foreign-owned subsidiary banks in Vietnam after 2010.
Governor Le Duc Thuy commented: “After joining the WTO, we have to accept a wider opening of banking services. Foreign banks and credit organisations will have more opportunities to penetrate the Vietnamese market. And thus, the competition pressure against domestic banks is also higher.” However, he affirmed that this is also a momentum to boost up the stable development of the Vietnamese banking system.
How can we avoid damaging local banks?
Of course, all knows that the international integration will generate more opportunities and more challenges. The matter is how to clearly recognise those opportunities as well as challenges.
The most pressing point is that Vietnamese banks have a low starting level in market development, weak capital sources, backward technology and organisation and low management level. The total chartered capital of Vietnamese commercial banks is only over VND21,000 billion (US$1.31 billion). The credit balance is roughly equivalent to 55 per cent of GDP, much lower than the rate of over 80 per cent in regional countries.
On average, each State-run commercial bank has an investment capital of US$200-250 million, equal to a medium-sized bank in the region while each joint stock bank has a chartered capital of VND200-300 billion (US$12.5-18.75 million). Meanwhile, the strong point of foreign banks is service provision but that of domestic banks is credit activities.
Hence, to increase financial capacity and credit quality of banks to approach international standards is a core target the State Bank has cited in the Banking Sector Development Scheme until 2010 and vision 2020 which has recently been approved by the Prime Minister.
Specifically, according to the central bank's governor Le Duc Thuy, the State Bank of Vietnam will take direct measures such as supplementing capital to state-run commercial banks in order to raise their capital adequacy ratio (CAR) to more than 8 per cent from the current 3-4 per cent according to international standards
In addition, the State Bank advocates developing several commercial banks into multi-sector economic groups (banking, insurance, investment, brokerage, securities trading, assets management and others).
As for commercial joint stock banks, according to Governor Thuy, they should actively choose suitable times and forms to raise capital, improve service quality and business safety in order to quicken their listing on the stock market and to compete with foreign bank branches as Vietnam opens its banking service market.
Mai Anh
Vietnamese
