Vietnam, upon entering WTO, is committed to open up the banking-finance market to foreign banks, however the country has also placed some restrictions in a bid to ensure the balanced development of the domestic banking system.
“Compared to the Vietnam – US Bilateral Trade Agreement (BTA), Vietnam still follows the important restrictions in BTA such as not allowing branches of foreign banks to open transaction offices outside their headquarters, limiting foreign credit organizations in acquiring stakes of equitised state-owned banks, having not yet liberalized capital transactions and others,” said Pham Bao Lam, vice director of the central bank’s International Cooperation Department, a member of the WTO negotiation delegation.
In addition, the country also supplements some other important restrictions in an effort to accelerate management tools for the banking market upon entering the global trade club, Lam said.
“For example, establishing branches in Vietnam, foreign banks are required to have total assets of over $20 billion; in order to set up a joint venture bank or a wholly foreign-owned bank, a financial company, a financial leasing joint venture company or a wholly foreign-owned financial leasing company, a credit institution is required to own total assets of more than $10 billion.” Lam said.
Vietnam also does not permit foreign individuals or organizations to hold more than 30 per cent of total chartered capital of a commercial joint stock bank, Lam added.
According to Lam, Vietnam also loosened some restrictions on foreign arrivals in line with the current situation of its banking market and the current legal framework. “Namely, the country allows foreign banks to open wholly foreign – owned banks, branches of foreign banks can raise deposits in Vietnamese dong. Foreign credit institutions are able to issue credit cards based on the national treatment status,” Lam added.
Prospects of opening up Vietnam’s banking and finance market in the post-WTO period are worrying domestic banks when foreign revivals are expected to snap up the pick of the market.
A state media has recently issued warnings that Vietnamese banks should raise their competitiveness, otherwise they will soon face stalemate as foreign banks with high-quality and sophisticated services plus good management capacity are coming in.
“They will focus on cherry picking the big, well-performing corporations, foreign- invested enterprises or foreigners in Vietnam, and leave more risky business to local banks, particularly state lenders,” said an article published by the Vietnam Chamber of Commerce and Industry, or VCCI.
Currently, Vietnamese banks account for more than 80 per cent of total domestic savings, and while this huge amount of cash is the main source for their income, it is also a factor that discourages them from trying hard to apply new technology or services.
It is estimated that foreign banks account for 12 per cent of total assets of the whole banking system in Vietnam and this rate is growing. In addition, outstanding loans of foreign banks make up some 10 per cent of the country’s credit market share and deposits of foreign banks are equal to 10 per cent of the domestic deposits.
Foreign banks are expected to swell in the near term when they will soon be allowed to operate almost all banking services like domestic banks (except for consultation services and supply of banking information).
According to a recent survey of the United Nations Development Program (UNDP), 45 per cent of the surveyed clients would switch to borrowing capital from foreign banks instead of domestic banks; 50 per cent would select services of foreign banks and 50 per cent would deposit their money in foreign banks.
Thus, domestic banks can expect to lose up to half of their business activities to the hands of foreign rivals. To survive the competition, many local bankers are trying to sell shares to foreign investors.
In the upcoming time, together with efforts of the domestic banks, the State Bank of Vietnam has conducted many reform programs such as restructuring and rearranging state owned banks, particularly equitising almost all state lenders before 2010; rechecking the current legal banking document system; renewing the role and the organization of the central bank; developing the monetary market and revamping the forex management mechanism and others.
Banking Times
Vietnamese
