Local banks to be hit by client losses

Withdrawal syndrome: Vietnam’s local banks look set to lose a large chunk of their clients

Vietbid’s study, sponsored by the Australian Government, was released at a seminar on banking integration co-organised by SBV and the Vietnam-Australia Capacity Building for Effective Governance (CEG) facility in Ho Chi Minh City last week.
State-run banks currently hold around 75 per cent of the market share in Vietnam, but the figure is likely to drop to 40-55 per cent following economic integration, according to the study.
Joint-stock banks, meanwhile, will see their share surge from 15 per cent to 30 per cent by 2010, and the rest will belong to foreign and joint-venture players, the study found.
Foreign banks will compete with big commercial banks for corporate lending and with joint-stock banks to offer new services, the study pointed out. Modern services like internet banking will be the areas where competition will be fiercest, the study said, adding that improving technology infrastructure, providing new services and increasing service quality are the most urgent tasks for domestic banks.
Raising capital and management reform are the current focus of both state-owned and joint-stock banks. In addition, joint-stock banks are concerned with expanding their branch networks while state-owned banks are focussing on adopting international standards, the study reported.
However, for foreign banks, the priority is human resource development so that they can compete with service quality. While preparing to expand operations in Vietnam, they do not see larger branch networks as a priority. Instead, their strategy will be to join hands with domestic banks to tap their networks.
“Most foreign banks came here to serve multinational clients. If they want to expand services to Vietnamese customers, they will team up with local banks, as it is expensive to open new branches. However, network expansion is not their priority,” said Pham Quang Thai, a senior Vietbid consultant.
Nguyen Huu Nghia, from SBV’s banking strategy development department, said the opening up of the market will force banks to adopt market principles and become more transparent. “But ineffective banks will struggle for survival or even fall by the wayside,” he noted.
Nghia was supported by SBV reports at the seminar, which showed that Vietnam’s commercial banks are not very competitive when compared to foreign banks, since most remain small in terms of resources.
The country’s five State-owned banks, which account for 80 per cent of the total credit market, only have a combined capital of around $1 billion. Domestic banks’ products and services are also poor, while lending, their major source of income in the absence of other products, remains very risky.
The reports found the capacity of banks in risk management is still inadequate, and they face a critical stage in terms of credit risks.
Meanwhile, many banks currently do not observe regulations on bad debt calculations. The reports notes that fluctuations in exchange rates, inflationary pressure and rising interest rates are also creating risks for local banks.
At the seminar, banking experts said the central bank should quickly introduce higher auditing and accounting standards in line with international norms and take into account measures to improve internal inspections and internal auditing methods to safeguard banks’ operations.
They also suggested the central bank speed up the restructuring of banks to boost their transparency, improve the banking supervision system and enhance the quality of early warning system.