Foreign banks continue flying high

HSBC last week announced its 2011’s first half pre-tax profit in Vietnam soared 116 per cent, far exceeding the 70-90 per cent growth of a few leading Vietnamese lenders like Vietinbank and Eximbank and much higher than the average of 10.5 per cent of local banks.

The profit stood at $82 million, including that of wholly foreign locally incorporated HSBC Bank Vietnam Ltd, the Vietnam-based branch of Hongkong Shanghai Banking Corp. Ltd and HSBC’s investments in Bao Viet and Techcombank.

The $82 million pre-tax profit is higher than $58 million of leading state-owned lender Vietcombank and equal to domestic private bank Eximbank, despite the foreigner’s much smaller scale.

Mac Quang Huy, deputy chief executive officer for major brokerage Thang Long Securities, said foreign banks’ the main advantage in Vietnam was their cheap funds from parent banks.

“In situation of fund constraints, foreign banks can make high profits via the money market such as lending on the interbank market,” said Huy.

Sumit Dutta, country head of HSBC in Vietnam, told VIR that the bank chose not to join the interest rate war in attracting deposits.

“We have been always been strictly following the deposit rate cap set by State Bank and this has helped us to lower our lending costs as well to benefit our customers,” said Dutta.

Meanwhile, an executive from a local large-scale joint-stock bank said that with much lower mobilisiation interest rates in other markets at 2-4 per cent per year, foreign banks could bring in dollars then converting into dong for lending.

Huy added that foreign banks in Vietnam, like HSBC, normally use around 40 per cent of their fund for credit.

“The rest is funneled to money market such as the interbank market. This helped minimise loan-loss provision figures. Moreover, their total outstanding loan is not as big as local lenders,” said Huy.

In the interbank market where local lenders borrow short-term funds, in February-April period, lending rate was pushed up over 20 per cent, per year.

Dutta said that in line with the directives from the State Bank, HSBC stayed away from securities lending as well as speculative lending and focused on lending to important industries that serve Vietnam's development such as airlines or telecommunications.