Foreign hands getting busy with credit services

Local banks are casting nervous glances at potential foreign competitors

According to a State Bank source, aggregate credit growth of foreign bank branches had exceeded 50 per cent in the first half of 2008, the highest level ever. Thus, the market share of credit services for foreign players has risen to around 11 per cent from 10 per cent since the end of 2007.

Meanwhile, credit growth of local commercial banks was 19 per cent in the first six months of 2008. “This is an enormous credit market share growth in comparison with 0.4 per cent growth for the whole year of 2007 and almost 0 per cent growth in 2006,” said the source.

Nguyen Thi Mui, the Academy of Finance’s vice rector and a member of the National Monetary Policy Consulting Board, said foreign bank branches did not have to maintain moderate credit growth to help fight inflation.
“Thus, they are quite free to push up credit services. As far as I know, foreign bank branches are offering more favourable lending policies than local banks.

Some offer lower lending rates than local banks,” said Mui. In 2007, the 53 per cent credit growth was largely attributed to Vietnam’s 12.63 per cent increase in its consumer price index (CPI). Since the beginning of 2008, the prime minister has directed the State Bank to restrict local credit institutions’ credit growth to 30 per cent.

Pham Huyen Anh, the State Bank’s Banks and Non-Bank Credit Institution Department vice head, said regulations on foreign bank branches were quite loose and “should be tightened in the coming time”.
“For inflation control, local banks have been restrained in developing credit services. Foreign entities should have been restricted also,” said Anh.

According to financial experts, the reason for foreign players pushing up credit services is to take advantage Vietnam’s regulations on their capital mobilisation limit from the domestic market. Under Vietnam’s World Trade Organization (WTO) commitments, it must limit foreign bank dong mobilisation from domestic customers for a five-year period after entry. Accordingly, from 2008, foreign bank branches are allowed to mobilise up to 800 per cent of legal capital granted by the parent bank in dong. From 2009, this figure will reach 900 per cent, in 2010, 1,000 per cent and in 2011, restrictions will cease to apply.

However, under WTO commitments, foreign bank branches are allowed to mobilise dong from Vietnamese customers without any restrictions provided that the branches have established credit relations with those customers. “Thus, granting more loans to local customers allows foreign players to mobilise more than limit,” said a financial expert.

Mui said foreign movements were raising alarm among local banks that competition would only grow fiercer in the coming time, especially as foreign banks were allowed to set up local incorporations.