Local treatment to not cause waves

January 11, 2011 | 10:00
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Full national treatment of local currency deposits in foreign bank branches in Vietnam from this year will not cause fiercer competition between local banks.
Foreign banks have advantages in retail banking services

Under World Trade Organization commitments, from January 1, 2011, foreign bank branches will be allowed to enjoy full national treatment to mobilise deposits in dong from Vietnamese citizens with which the bank does not have credit relationship instead of enjoying a ratio of only 1,000 per cent of deposits to legal-paid-in-capital in 2010.

Currently, foreign bank branches play a crucial role in providing onshore financing for foreign direct investors, infrastructure projects and many of the local industries in Vietnam. 

Tran Du Lich, member of the National Financial Supervision Commission, said the new full national treatment would not trigger a fierce competition between current local banks and a number of 51 foreign bank branches in Vietnam from this year.

“Due to restriction in Article 128 of the Credit Institutions Law on the credit balance of foreign bank branch that makes the bank consider balancing deposit and credit in order to maintain safe banking ratios,” said Lich.

According to Article 128, the total credit balance provided to customers shall not exceed 15 per cent of the locally-owned equity of lenders comprising a foreign bank branch or a commercial bank in which locally incorporated bank is considered as a local commercial bank. 

“The new regulation could create a trend of establishing a locally incorporated banks in Vietnam like Citibank to enjoy local commercial bank treatment. However, the market scale of Vietnam is not big enough while the number of banks and credit institutions is large,” added Lich.

The central bank report reads that the country has five state banks with 1,312 branches, 37 joint stock commercial banks with 848 branches along with 17 financial companies, 13 financial leasing companies, a central people’s credit fund with its 1,044 arms at localities. These institutions still hold 90 per cent of retail banking services market share in Vietnam, providing a various number of banking services including e-banking and mobile banking.

There were around 28.5 million of banking plastic cards by the end of 2010 with 11,000 automatic teller machines (ATMs) and nearly 50,000 points of sales (POS).

There are five locally incorporated banks and five joint venture banks, who are aggressive to penetrate into retail and corporate banking services.

“Foreign banks have advantages in providing both retail and corporate banking services and will gain larger market share on that in the future. HSBC (Vietnam) or Citibank branch in Vietnam are two good examples,” said Le Tham Duong, head of Ho Chi Minh City Banking University’s Business Management Faculty.

By Song May


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