Foreign banks dominate EPZs, IPs

According to the State Bank’s Ho Chi Minh City branch, out of 48 credit institutions now providing services in the city’s IPs and EPZs, 14 foreign and joint-venture banks take the bulk of business, holding 51.3 per cent of total outstanding bank loans, while 34 domestic banks lend just 48.7 per cent.
Total outstanding loans belonging to banks in city-based IPs and EPZs are estimated to reach VND15.5 trillion ($981 million) this year, 8.8 per cent more than previously recorded.
“Foreign banks have high quality and diverse services, modern banking technology and highly skilled staff,” said Tran Ngoc Minh, director of the branch.
With support from parent companies abroad and their worldwide networks, foreign banks have easy access to the latest information and can more easily attract depositors and borrowers.
Minh also said the poor quality of services offered by domestic banks hindered long-term relations with enterprises, including those in IPs and EPZs. Many domestic banks cannot accurately assess the assets borrowers use to apply for a mortgage, he added.
“Domestic banks are hesitant to offer non-collateral loans to IP and EPZ enterprises because they lack the ability to accurately assess the company’s financial potential,” he said.
Other central bank officials and businesses agreed that steep interest rates, coupled with Vietnamese banks’ property mortgage requirements, allowed their foreign rivals to meet the bulk of companies’ borrowing needs in the city’s IPs and EPZs.
The enterprises lease land to build factories, but have yet to receive land use rights and equipment ownership certificates, and thus have been unable to use these as collateral for local loans. However, lending criteria at foreign banks are very straightforward, based on credit worthiness rather than just collateral.
“Borrowing from Vietnamese banks is fraught with difficulties, so most foreign-invested enterprises prefer borrowing from foreign banks because procedures are simple,” said an executive from Itaco, the developer of Tan Tao IP in Binh Chanh District.
He said local banks have failed to develop rapidly in most of IPs and EPZs.
“Ho Chi Minh City banks lack a strategy to invest in IPs and EPZs, and largely consider these the ‘territory’ of foreign banks, even though many enterprises need cheap loans from local banks,” he said.
Ho Chi Minh City-based IPs and EPZs have so far attracted 781 domestic and foreign-invested projects, with a total registered capital of more than $2.25 billion. Most are in great need of capital to build infrastructure, pay land rents and upgrade equipment.
“Local IP and EPZ enterprises have become a potentially lucrative market for city-based banks to develop their business, particularly in the lending area,” said the central bank’s Ho Chi Minh City branch director Minh.
If banks were able to reach a one per cent growth rate in loans to local IPs and EPZs, enterprises would be able to increase their export value by 0.08 per cent, he said. To exploit the potential market, he said local banks should modernise their infrastructure, diversify services, and create ways of generating capital to meet enterprises’ needs.