Competition for Development between Local and Foreign Banks

However, only three of the 19 applications have been approved in principal by the State Bank of Vietnam (SBV). They are Commonwealth Bank from Australia, IBK from South Korea and Fubon from Taiwan (China). According to Phung Khac Ke, Vice Governor of SBV, to receive licenses applicants must satisfy all requirements stipulated in Government Decree 22 about performance and organisation of foreign bank branches, joint-venture banks, 100 per cent foreign-owned banks and representative offices of foreign credit agencies in Vietnam. In addition, banks must satisfy current laws and regulations in which relations between the State Bank of Vietnam and supervisors of foreign credit agencies must be guaranteed by cooperation minutes or memorandum of understanding.

 

Regarding the establishment of 100 per cent foreign-run banks, SBV said applications can only be approved when cooperation minutes between SBV and local authorised agencies of the applicants are complete. However, in technical aspects, some applications have been okayed, SBV said.

 

According to SBV evaluation, foreign bank branches and foreign-invested credit agencies all would gain sustainable growth, and safe operation in 2007. They also satisfy all SBV regulations. At present, there are 35 foreign bank branches, five joint-venture banks, four financial leasing companies, and two 100 per cent foreign-owned financial companies operating in Vietnam. Pre-tax revenue of the group in 2007 is estimated at over VND2,400 billion, up 140 per cent over 2006.

 

The State Bank of Vietnam has approved in principal the establishment of four more commercial banks, including PV Bank, Bao Viet Bank, FPT Bank and Lien Viet Bank. The new openings have raised the total number of domestic banks to around 80. However, at this point few banks are fully capable of utilizing all their advantages.

 

“Under local laws, 100 per cent foreign-invested banks enjoy legal status in Vietnam. With big advantages of technology, capital and management, foreign banks are able to provide better-quality services and better risk management. These are big challenges for domestic banks. However, the presence of foreign banks will also bring more opportunity for domestic ones,” said Kieu Huu Dung, Director General of SBV Banks and Non-bank Credit Institutions Department.

 

“To take the initiative in competition, stand firm and continue sustainable development, domestic banks should make use of their operation networks and boost cooperation with domestic and foreign partners, instead of confronting them,” Director of the HCM City Branch of the State Bank of Vietnam Tran Ngoc Minh, said, adding that only in this way can domestic banks reduce the risk of bankruptcy.

 

In recent times, domestic banks have in turn raised chartered capital, improved business administration systems, introduced new services and satisfied the capital increase requirements of the State bank of Vietnam. Domestic banks have sold between 10 and 15 per cent of their chartered capital to credit agencies and foreign banks. They have also sold more shares and sought approval for listing on the stock market. By selling stakes to foreign banks, domestic banks enjoy technical assistance for their capital mobilisation, monetary market, and risk management activities. They [domestic banks] will also have chances to seek partners. Nguyen Quang Trung, Vice General Manager of Sacombank, said domestic and foreign banks can exchange technology and human resource as well as learn from each other’s experience. They can also cooperate with each other in business expansion overseas. Sacombank has joined hands with ANZ in opening joint branches, in which Sacombank has learned from the experience in technology and banking management methods from its partner.

 

Banks have also paid much more attention to technology innovation. Sacombank, Habubank, Viet-A Commercial Joint Stock Bank (VAB), Ngan G-bank and HDB have invested millions of USD in Core Banking application to develop advanced banking services. VIB Bank has successfully developed the multi-functional banking system SYMBOL provided by Singapore-based System Access. Notably, the Vietnam Technology and Commercial Bank (Techcombank) has received an innovation award for IT application from Financial Insights. Techcombank overwhelmed nearly 70 submissions from Asian institutions to get the prize, the first of its kind for a Vietnamese bank.

 

Moreover, banks have also enhanced cooperation with local economic units to boost capital potential and develop banking services. The Saigon-Hanoi Bank (SHB) has signed a cooperative deal with the Vietnam Coal and Mineral Group (Vinacomin) and the Vietnam Rubber Group (VRG). Meanwhile, the Mekong Delta Housing Development Bank (MHB) joined hands with the Vietnam Post and Telecommunications Group (VNPT). Sacombank, MB and Habubank have recently inked a comprehensive business cooperation agreement on a lending service. The partners will also support one another in foreign currency regulation under the State Bank of Vietnam’s regulations, and in gold and foreign currency trading, to satisfy customer demand. Especially, they have raised bank deposit limits of one another without guaranteed assets of VND1,000 billion. 

 

These recent developments in Vietnam’s banking system reflect the fiercer competition in the current banking market.