Profit is Transient, Market Share is Everlasting

Vietnam’s WTO admission is the primary cause of sharp increases in foreign investment inflows into the country. In order to provide full information on the Vietnamese economy in the integration period to foreign financial investors, as well as help them to orient their investment in Vietnam, Euromoney hosted the second “Vietnam Investment Forum” at Melia Hotel in Hanoi, March 19 to 20, 2007.

 

Quick market capitalisationInternational financial organisations, big investors and fund management companies from developed nations are regarding investment into the rapidly expanding Vietnamese market as an immediate goal. The quick acceleration can be seen in three channels, namely foreign direct investment (FDI), official development assistance (ODA) and foreign indirect investment (FII). FDI inflows soared when Vietnam was preparing to join the WTO. Particularly, in 2006, Vietnam attracted a record of US$10.2 billion registered FDI capital and realised the disbursement of US$4.1 billion. In the first two months of 2007, FDI capital growth continued with a registered sum of US$1.9 billion, up 27 per cent on year. 

 

As for ODA capital sources, in 2006, international donors pledged US$4.45 billion for Vietnam. Also in 2006, the FII capital poured into Vietnam reached US$3 billion, contributing to the heating of the Vietnamese stock market. In early 2007, FII capital sums reach an estimate of over US$4 billion, accounting for a third of the total market capitalisation (around US$14 billion and equal to 23 per cent of GDP). In the coming time, when giant Vietnamese firms are listed, FII capital inflows will grow even more.

 

Under such an active financial market, the 2^nd “Vietnam Investment Forum” hosted by Euromoney drew participation of more than 1,500 foreign investors, and was considered the biggest economic forum in Vietnam in 2007. At the forum, dozens of dialogues between Vietnamese senior officials and Vietnamese and foreign financiers, on post-WTO opportunities and challenges livened the atmosphere. 

 

In the integration process, the focus on improving financial capacity and expanding networks to small towns and provinces is the top priority of Vietnamese banks. According to Mr Quang Trung, Deputy General Director of Sacombank, the business philosophy, “Profit is transient and market share is everlasting,” should be fully brought into play. The presence of banks in provinces and small cities helps their market share grow and narrows the income gap between rural and urban areas. A large sum of idle capital will be put into banks and back into circulation, creating big changes in the Vietnamese countryside.

 

In parallel with network expansion to provinces and cities, Vietnamese banks also need to research, develop and diversify their products and services to serve the business community as well as individuals. Besides, for banks to have a stable foothold before the fast expansion of the stock market, banking policymakers should quickly reshuffle their professional working apparatus. Securities companies and fund management companies will be two integral parts forming leading investment banks in the future.

 

Finally, market share expansion and the level of professionalism in the banking sector have serious impacts on social and economic development. Only when the Vietnamese economy moves from a “cash economy” into a “banking and transfer” economy will it become an industrialised or developed economy. And only then will the Government be able to effectively control economic problems like bribery, laundering, corruption and tax evasion.

 

Therefore, the Government needs to support and create mechanisms developing the banking sector. The State Bank of Vietnam’s proposal to raise minimum equity capital in a branch from VND20 billion (US$1.25 million) to VND70 billion (US$4.4 million) is a difficulty for banks’ quick expansion plans.

 

With the active assistance of all banking strategists and deep concern from the government, we can address post-WTO entry risks related to stiff competition among banks, and between banks and the stock market. After that, not only the banking sector but also the entire economy will become industrialised, as visualized in national economic development strategies.
Kim Phuong