What Local Banks Do After WTO Accession?

November 7, 2006, marked a turning point for Vietnam’s international integration as the country became the 150^th member of the World Trade Organisation (WTO). The Vietnamese economy has proven a high growth rate and has been highly appreciated in the world. Along the economy’s progress, local financial and banking sector has seen a rapid development over the past decade with a development boom of commercial joint stock banks and the establishment of securities trading centres, which has contributed to the development of local commercial banks.

 

Globalisation and the liberalisation of trade has produced an impact on the Vietnamese economy as a whole and the banking sector in particular. Framework agreements on trade and services, and international regulations have helped the local banking system improve their international competitiveness.

 

In terms of State management, policies towards the banking system has improved, becoming more open and giving more powers for banks with regulations on concrete roadmaps for the sector to get access to the international standard and practice. Accordingly, the State Bank of Vietnam has applied flexibly macro-economic regulation instruments, such as required reserves, discount rates, foreign exchange rates and other monetary policies to stabilise the local financial and credit market, improving the effectiveness in activities of local commercial banks.

 

Having understood opportunities and challenges from Vietnam’s accession to WTO and local commercial banks have concentrated on restructuring and renewing their activities, thus improving their competitiveness and targeting a stable and sustainable development. In recent years, local commercial banks, especially commercial joint stock banks, have witnessed an outstanding development with a high year-on-year growth rate, thus having attracted much attention and investment capital from many international financial institutions.

 

In general, the Vietnamese banking sector has made a great progress during the country’s international integration. Weaknesses and challenges, however, remain. Concretely, legal infrastructure for the sector is being perfected while indirect policy instruments have directly interfered in business activities of local banks. Also, many norms have yet to be evaluated in accordance with the international standard and practice. In addition, credit has seen an overheated growth but has not gained a high effectiveness. Most local enterprises have not observed accounting regulations, resulting in non-transparent business reports and risky credit activities. The development and management of human resources remains unprofessional. The technological application and convenient services in local banks remain constraint. Also, financial budget of local banks remains small. However, above the shortcomings and weaknesses, in the near future, when globalisation and liberalisation of trade occur, alongside the presence of many non-banking credit organisations, including post office and insurance, and international credit institutions, which have become and are potential rivals for Vietnamese commercial banks, the harmonisation of national and international standards will facilitate the recognition of each other among WTO members and will become a driving force for the Vietnamese economy and the local banking sector in particular.

Favourable conditions and difficulties of the banking sector Tran Ngoc Minh, director of the State Bank of Vietnam, Ho Chi Minh City branch, said favourable conditions would be bigger than difficulties and challenges. The biggest challenge, however, is that foreign banks will be allowed to operate like local commercial banks. This may result in fierce competition among them.

Following are favourable conditions and difficulties:

·         The Vietnamese economy will have an opportunity to gain a stronger development when barriers to international markets are removed. Production, trade, services, and incomes of Vietnamese may have an opportunity to increase, thus helping boost the demand for financial and banking services. This will be a good opportunity for the Vietnamese banking sector in general and Sacombank in particular to expand their market and business scale.

·         Mechanisms and policies will be reformed and amended, creating equality for all economic sectors and getting access to the international standard.

·         There will be opportunities for accessing modern banking technologies and services, and promoting business co-operation.

·         The participation of foreign credit organisations in the local market will be a motivation for local credit organisations to renew its structure, promote their modernisation and strengthen their financial and risk control capability to stand firm within an environment of fierce competition.

·         Local consumers are impressed by trademarks of foreign credit organisations. In fact, there are few opportunities for Vietnamese customers, especially individuals, to get access to services and products of foreign banks. With the opening of the local market many foreign credit organisations with strong trademarks will establish branches or banks, and expand their business scale, or introduce more products and services to Vietnam. Therefore, local people will have an opportunity to compare and evaluate the effectiveness of activities of credit organisations.

 

·         With the opening of the market and removal of constraints of market and customers, foreign credit organisations will have more business opportunities. This, in turn, will result in fiercer competition in the local financial and monetary market. With their overwhelming strength, foreign credit organisations will have more advantages in getting access to major customers.

·         Competition in attracting high quality human resources: with their fame, more favourable environment, modern banking technologies and good payment, foreign banks will become more attractive to local high quality human resources, just like what has happened to other fields over the past years.