Door opens to broader foreign bank services

Under Decree 22, which forms part of Vietnam’s preparations for membership of the WTO, wholly foreign-invested banks will be able to receive operating licences from March 24.
Previously foreign banks had only been able to open branches and representative offices or to form joint ventures with local banks.
However, the decree also states that foreign banks must have at least $10 billion in assets to set up a wholly foreign-invested bank in Vietnam.
The deputy general director of a foreign bank branch, who preferred to remain anonymous, said that it was a positive move for the banking industry, reflecting the determination of the government to deeply integrate with the world economy.
He also revealed that his bank will thoroughly consider the decree and may discuss taking advantage of the latest decree with its overseas parent.
Under the existing US-Vietnam bilateral trade agreement, US banks will be permitted to set up wholly foreign-invested banks by 2010, nine years after the agreement came into effect.
Observers said that with the setting up of a legal framework for the entire foreign-invested banking sector, the government has created a breakthrough for the banking industry, a positive move ahead of the 10th round of WTO negotiations between Vietnam and the US to be held in April.
Vu Viet Ngoan, general director of the Vietnam Foreign Trade Bank (Vietcombank) said that the State Bank of Vietnam should release some restrictions on wholly foreign-invested banks immediately.
“Then the other restrictions could gradually be removed until 2010,” he said, adding that restrictions on wholly foreign-invested banks should be the same as foreign bank branches, which are still forbidden to mobilise capital in local currency in excess of 500 per cent of their chartered capital.
Representatives of some other local commercial banks agreed, saying that the liberalisation of the banking industry was quite sensitive and therefore requires a cautious approach to removing the protection mechanisms.
Dung said that the required minimum assets base of $10 billion for foreign banks is not too high but it was time for the State Bank of Vietnam to implement a lower minimal chartered capital for wholly foreign-invested banks of about $70 million.
“With such a requirement, foreign banks will probably prefer to invest in local commercial banks rather than setting up their own wholly foreign-invested banks,” he said.
Presently, some foreign banks such as ANZ, Standard & Chartered and the Hong Kong and Shanghai Banking Corporation (HSBC) are involved in purchasing stakes in some local commercial banks.
The existing regulations cap the stakes that foreign partners can purchase in a local commercial banks at 30 per cent and the limit is a mere 10 per cent for an institutional investor.
Nguyen Van Binh, chairman of the management board of the Vietnam Industrial and Commercial Bank expressed a different view. He said that allowing wholly foreign-invested banks to set up shop was a positive warning for local commercial banks.
“Now the banking industry has been liberalised, local commercial banks have to accept that tough competition from foreign rivals is inevitable and they must sharpen their governance capability and enhance their equity capital,” he said.



No. 753/March 20-26, 2006