More Lion City banks eye Vietnam

Singapore’s banks are taking tentative steps into the Vietnamese market Photo: Le Toan

“Vietnam has implemented a series of regulatory changes in the financial sector, which is a positive move to enhance the level of openness within the industry. The high level of digital readiness in Vietnam also presents opportunities for innovative banking services,” said Ian Wong, head of Group Strategy and International Management at United Overseas Bank (UOB).

“With the establishment of the ASEAN Economic Community (AEC), and the potential ratification of the Trans-Pacific Partnership (TPP) agreement, Vietnam is set to benefit significantly from rising trade and investment inflows into Southeast Asia,” Ian Wong told VIR.

UOB is one of the three major Singaporean banks having opened branches in Ho Chi Minh City or Hanoi since Vietnam joined the World Trade Organization in 2006. The other two are DBS Bank and Overseas Chinese Banking Corporation (OCBC).

UOB is seeking the State Bank of Vietnam’s approval to upgrade its Vietnam branch into a wholly-owned entity.

Last year, the bank signed a Memorandum of Understanding (MoU) with the Ministry of Planning and Investment’s Foreign Investment Agency (FIA). The MoU aims to raise trade and investment between Vietnam and Southeast Asia by facilitating UOB clients’ expansion plans in key destinations, including Ho Chi Minh City, Hanoi, Danang and Haiphong. UOB claims it is the first overseas bank to sign such a deal with the FIA.

Meanwhile, the Ho Chi Minh City branch of DBS Bank, the largest bank in Southeast Asia by assets, raised its charter capital from $20 million to $70 million in early 2016. OCBC also raised the capital of its Ho Chi Minh City branch to $31 million in 2014, after withdrawing a 14.88 per cent stake from Vietnam’s VPBank a year earlier.

Josephine Teo, a senior Minister of State at the Singaporean Prime Minister’s Office, the Ministry of Foreign Affairs and the Ministry of Transport, highlighted that Singapore is currently the third largest direct investor in Vietnam, as well as Vietnam’s biggest trade partner in ASEAN. “As a result, many Singaporean banks want to expand their business in Vietnam to better serve bilateral trade and investment.”

“Singaporean companies, including banks, highly regard the economic growth potential of Ho Chi Minh City. We hope the leaders of Ho Chi Minh City will launch more supportive policies for the banking and finance sector, as many Singaporean banks would like to open their branches here,” Josephine Teo said in a meeting with Ho Chi Minh City officials in late July.

However, an invasion of Singaporean banks is not expected, particularly in the merger and acquisition (M&A) market. Long Ngo, senior research manager at Viet Capital Securities, noted that the due diligence process for M&As between Singaporean and Vietnamese banks has had some flaws in the past.

“The common method of M&A has previously been to hire an international investment bank for due diligence. This bank will then ask a Vietnamese investment bank about the peculiarities of the Vietnamese banking system and the target bank. However, this setup has not been optimal and banks from Singapore buying into domestic banks weren't given the best advice on traps and pitfalls of their investment,” Ngo told VIR.

Vietnam’s central bank has welcomed overseas financial institutions, including those from Singapore, to buy out struggling domestic banks. Nevertheless, Ngo pointed out that foreign banks are unlikely to acquire severely distressed banks in Vietnam.

Similarly, banking expert Nguyen Tri Hieu, noted that the Vietnamese banking system is still mired in various problems, including insufficient risk management, bad debts and low levels of corporate governance. As a result, he forecast that no major arrival of Singaporean banks will take place in Vietnam in the next three years.

“The expert added that relaxing the foreign ownership limit of Vietnamese banks, which currently stands at 30 per cent, will also encourage Singaporean financial institutions to take Vietnam more seriously in their expansion plan.