Vietnam Banking System Strengthening Financial Capacity

 

According to Vietnam’s service market opening commitments to World Trade Organisation (WTO), foreign credit organisations are permitted to open wholly foreign-owned banks in Vietnam from April 1, 2007. The banking sector, like the insurance and other financial services, is forecast to be a hot spot in terms of development and competition after Vietnam joined the WTO. This also puts pressure on the domestic commercial bank system.

 

In fact, Vietnam had to open its service market when the negotiations for its admission to the WTO were underway. The banking sector was opened in accordance with agreements with ASEAN group and the US (Bilateral Trade Agreement). After a five-year implementation of the BTA, the opening of the banking sector for US companies is still limited. However, both state-owned banks and commercial banks have felt the pressure of future competition.

 

In recent years, especially in the last two years, the activities of the Vietnamese banking sector have been very dynamic. Within one year, several banks have raised their chartered capital several times. The race to strengthen the capital resource has been kicked off by more than 30 commercial joint stock banks, including dozens of banks with chartered capital of above VND1,000 billion (US$62.5 million) and many with VND700-800 billion. According to the Banks Department under the State Bank of Vietnam, over 80 per cent of Vietnamese commercial banks will have chartered capital of VND1,000 billion upwards by 2007.

 

In parallel with issuing more convertible bonds and shares, commercial banks also enhance their strength and administration capacities by seeking and cooperating with strategic partners, which are mainly world-leading financial groups, or calling the investment contributions by influential State-run firms. A series of agreements have been signed between domestic banks and foreign ones; such as HSBC buying the stakes of Techcombank, ANZ acquiring the shares of Saigon Thuong Tin Bank (Sacombank), Standard Chartered purchasing the stakes of Asian Development Bank (ACB), OCBC Singapore buying the stakes of the Bank for Private Enterprises (VPBank). In the near future, the Vietnam International Bank (VIB Bank) and Eastern Bank (EAB) will announce their strategic foreign partners.

 

Several joint stock banks choose strong domestic corporations to raise their capacities. For example, the Electricity of Vietnam (EVN) invested in An Binh Bank (ABBank) and Vietnam Oil and Gas Corp. (PetroVietnam) invested in Global Bank (G-Bank). Notably, several commercial joint stock banks will list their shares on the stock market - proof of the financial transparency of the banking sector.

 

As for the State-owned commercial banks, there is a split in commercial activities and social development purposes. The Vietnam Bank for Social Policies (VBSP), which was formerly the Bank for the Poor, was split from the Vietnam Bank for Agriculture and Rural Development (Agribank). State-owned commercial banks have taken initiative in appraising loans for capital-needed projects and reduced loans ordered by State organs. To raise capital for State-run commercial banks, the Government allowed the equitisation of the Bank for Foreign Trade of Vietnam (Vietcombank) and Mekong Housing Bank (MHB). It has recently agreed the equitisation of three remaining State-owned commercial banks from now until 2008.

 

State-owned commercial banks have been active in resolving their shortcomings. They applied international standards to administration and business strategy outline to further get integrated into the world. By various methods like negotiations for debt reduction, formations of debt trading companies or setups of risk prevention funds, State-run commercial banks have gradually resettled overdue debts. Vietcombank has basically resolved its outstanding debts after applying the debt restructuring plan. This bank also asked the Government and the State Bank of Vietnam to issue bonds worth of over VND1,370 billion (US$85.63 million) in December 2005, raising its equities to over VND9,300 billion (US$581.25 million) and raising the capital safety index to 8.82 per cent (0.82 per cent higher than the minimum rate of the international standard).

 

At present, Vietcombank is speeding up its equitisation. The bank aims to become a medium financial and banking group, ranking 70^th in the region, with a total assets value of from US$15 billion to US$20 billion, including equities of from U$1.5 billion to US$2 billion. Initially, the bank set up subsidiary companies like VCB Securities Co., VCB Fund Management Co., Finance Leasing Co., Hong Kong-based Vinafico Finance Co., and two representative offices in Singapore and France. Currently, Vietcombank is promoting the formation of an insurance firm and the opening of a representative office in the US and a branch in Singapore.

 

The Vietnamese commercial banking system is actively preparing necessary conditions to get further integrated into the world economy, especially the strengthening of financial capacity.