The Vietnamese banking system has never experienced a period as eventful as the present. According to its WTO commitments regarding the service sector, Vietnam will permit foreign banks to set up wholly foreign-owned banks in the country. The banking sector is expected to be a post-WTO hotspot in terms of development and competition.
Self-refreshing
The race to bulk up capital strength has begun, with the participation of more than 30 commercial joint stock banks. Dozens of banks have chartered capital of over VND1,000 billion (US$62.5 million), while many smaller ones have some VND700-800 billion (US$43.75-50 million). Within only one year, many banks have increased their chartered capital to several times. According to the Banks Department under the State Bank of Vietnam, by the end of 2007 over 80 per cent of commercial banks must have chartered capital of VND1,000 billion (US$62.5 million). Most general directors of commercial banks said the capital increase is aimed to sharpen their competitive edge as Vietnam joins the WTO and implements its commitments to the global trade club.
The profits made by commercial banks were quite high in 2006 and mostly exceeded annual targets. Asia Commercial Bank (ACB) reported the sector’s largest pre-tax profit of up to VND568 billion (US$35.5 million), exceeding its target for the year. Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) made profit of VND544 billion (US$34 million) in 2006, up 77.5 per cent over 2005. The Vietnam Import-Export Bank (Eximbank) bagged a profit of over VND340 billion (US$21.25 million) in the year, up 20 per cent over its yearly target. The Oriental Commercial Joint Stock Bank (OCB) profited VND140 billion (US$8.75 million), doubling the amount it made in 2005. Saigon Commercial Joint Stock Bank (SCB) earned profit of VND151.4 billion, more than tripling the 2005 amount.
Together with the profit target, the asset size of many banks is also scaled up. ACB had a total asset value of up to VND42,500 billion (US$2.66 billion) by the end of 2006, doubling the amount it reported in early 2006. Sacombank increased its asset value by 71 per cent to VND24,900 billion (US$1.56 billion). Eximbank raised its asset value to VND17,000 billion (US$1.06 billion) in 2006, up nearly 50 per cent on year.
In parallel with the additional convertible stock and bond issues, commercial joint stock banks also strengthened their management power by cooperating with strategic partners, typically world-leading financial groups or influential state-run corporations. Ms Phan Bich Van, General Director of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) said, “Foreign investors have strong capital sources and administration experience, while we have deep understanding of the domestic market and long-standing presence in the country. Evidently, the cooperation is the bridge for foreign financial organisations to expand their operations and take part in the capital market in Vietnam. The cooperation also creates potential cross-sales of products.” Understanding the cooperative advantage, Sacombank sold 10 per cent of its stakes to ANZ. Beside Sacombank, Techcombank also sold stakes to HSBC, ACB to Standard Chartered Bank and VP Bank to OCBC Singapore. In the coming time, Vietnam International Bank (VIB Bank) and East Asia Commercial Joint Stock Bank (EABank) also will find strategic partners.
The market also witnessed a race in raising capital deposits. In the year, bank interest rates rose in three waves, and launched numerous attractive sales promotional programmes with bonus values up to one billion Vietnamese dong. Many experts forecast more active and dynamic competition in 2007.
Commercial joint stock banks not only raised interest rates but also diversified depository services and applied flexible credit policies for specific groups of clients. These helped raise bank deposits and loans (the overall commercial joint stock bank block’s deposits are up 45-60 per cent and outstanding debts up 25-50 per cent). The price of commercial banks’ securities on the stock market, especially on the over-the-counter (OTC) market, increased strongly thanks to high profitability and security, which in turn have positive effects on the development of the issuing banks.
For their part, State-run commercial banks also made positive moves following the general development trend. The Bank for Foreign Trade of Vietnam (Vietcombank) and the Mekong Housing Bank (MHB) were picked up for equitisation. The Industrial and Commercial Bank (Incombank), the Bank for Investment and Development of Vietnam (BIDV) and the Vietnam Bank for Agriculture and Rural Development (Agribank) have recently been awarded licences for the two-step equitisation mechanism. Their full equitisation deadline is within 2008.
Ready for competition
Mr Nguyen Quang Trung, Deputy General Director of Sacombank, said, “In the coming time, foreign banks including those from the United States will be licensed to open wholly foreign-owned banks. With their advantages in risk management, products and services, they will be real challengers for domestic banks.
However, according to statistics from economic experts, while banking sector competition will be stiffer in the coming time, this does not mean Vietnam is at a disadvantage in the game. The statistics said domestic banks actively strengthened themselves, by increasing chartered capital and cooperating with foreign partners to acquire modern technologies and advanced administration techniques. Commercial joint stock banks in Vietnam will compete, not with their current interest rates, but with the ability to supply better products and services to their clients.
“It will take time for foreign banks to understand business conventions and business culture when they enter Vietnam. Hence, they will be unlikely to compete with domestic rivals. Instead, they will cooperate with domestic banks. If there is a severe competition, it will take place in a later time,” Ly Xuan Hai, General Director of ACB said.
Sharing this view, Mr Han Ngoc Vu, General Director of VIB Bank said, in fact the rivalry between domestic banks and foreign banks has already existed for quite some time. In recent years, Vietnamese banks and foreign banks mainly compete in financing investment projects in Vietnam. Competition for supplying solutions to manage monetary flows for enterprises will be stiffer the coming years. However, retail field competition will take place at a later time.
Most banks have prepared their competition strategies, mainly based on their advantages. Nguyen Duc Vinh, General Director of Techcombank, said in the coming years, Techcombank will still focus on small and medium enterprises as its strategic clients. To create advantages, Techcombank organises seminars for specific fields and industries, and introduces products suitable for enterprises of those fields. Meanwhile, Ly Xuan Hai, General Director of ACB - the largest commercial joint stock bank, said: “ACB is very confident of its potential and is ready for the competition.”
Lan Anh
Vietnamese
