Banks have home advantage

Cultural knowledge will prove useful in future banking competition

State Bank governor Le Duc Thuy announced recently that with their experience in the domestic market and with their understanding of tradition, lifestyle and the business environment in Vietnam, domestic banks would still have the capability to keep their position.
“I’m not concerned so much with the possibility the domestic banking system losing a firm foothold even if those banks must re-structure their organisation following international standards,” said Thuy.
There are now 10 foreign banks asking the central bank if they can open branches in Vietnam and three others hoping to open 100 per cent foreign invested affiliates, as well as a group asking to establish a 100 per cent foreign invested financial company.
However, with requirement of a minimum of $20 billion in total asset value to open a branch and $10 billion to establish an affiliate, one US bank was already denied a request by the central bank to open an affiliate because it had only $8 billion.
Branches of foreign commercial banks are also disallowed opening other transaction points outside the branch office, preventing them from expansion. Foreign banks also face regulations on foreign currency mobilisation from individuals, with a minimum level of $100,000.
Thuy said the retail banking market would witness the fiercest competition, as the country has only 15 million bank accounts mostly for savings, and does not use accounts for payment or other transactions, an area where foreign banks have thorough experience.
However, foreign banks still have difficulties operating in Vietnam due to high service charges, alien local procedures and scant customers. However, foreign banks are expected to have an advantage in Vietnam, as Vietnamese people attach high importance to foreign services and products.
“I believe that domestic banks will not ignore such an important retail market and foreign banks will participate in the segment as well as create a motive for domestic banks to learn how to exploit the market well,” said Thuy.
“Domestic banks may loose high income and trusty customers in large urban areas, and have to get involved in other customer segments where risk ratio is higher,” said Kieu Huu Dung, director general of the central bank’s Bank and Non-bank Credit Institutions Department.
“Vietnamese banks may loose in risky banking services where foreign banks have experience, such as in the foreign currency business,” Dung said.
However, the competition will still be open for rural financial services, especially for the poor. The government may then increase power to institutions operating in rural areas, such as Agribank, Policy and Society Bank and the People’s Credit Fund, as well as develop a micro-finance system.



No. 789/November 27- December 3, 2006