VietNamNet Bridge – Viet Nam is continuing efforts to reform its banking system and invite foreign banks to join the domestic market via increased bank ownership. 

Promising finance-banking market

Foreign investors have viewed a high growth potential in emerging markets like Viet Nam, estimating it between two and two-and-a-half times higher than GDP growth rate.  

Experts predicted that the Vietnamese banking market would expand by around 15% over the next ten years. Demands for financial and banking services, especially credit cards, would rise in new emerging markets including Viet Nam.

Realizing that trends, Vietnamese credit institutions themselves have spared no effort to drastically restructure their operations and improve their financial, administrative and manpower capacity.

According to the latest survey of the Monetary Statistics and Forecasting Department under the State Bank of Viet Nam (SBV) announced on July 20, 99% of commercial banks were upbeat that the credit growth would touch 18.2% this year. The figure was higher than the SBV’s preset goal of 13-15%.

Lending interest rates would decline slightly and bad debts would fall to only 2.49% at the year end.

Bank holdings are expected to rebound following the restructuring process. Hence, it is right time for foreign investors to join the domestic market.

Since the first wave of wholly owned foreign banks in 2008, Viet Nam is home to eight overseas lenders including HSBC (the UK), Shinhan Bank (the Republic of Korea), ANZ(Australia); Standard Chartered (the UK), Hong Leong(Malaysia) and Public Bank Berhad (Malaysia).

These foreign banks have played an important role in supplying credit inflows for FDI and domestic enterprises.

Strategic partners are still reluctant

However, the World Bank on July 20 published an Update on Viet Nam's Recent Economic Development” saying that despite recent legal revisions that allow for exceptions to the foreign ownership cap, there was no direct participation of foreign banks in any of the recent M&As. While some of banks involved in recent deals have had foreign investments, none of the transactions directly involved foreign banks.

The WB attributed the result to a number of factors including lack of attractive banks and supportive regulatory framework.

While the cap for total foreign holdings remains unchanged at 30% (consistent with Viet Nam’s WTO commitments), Decree 01, issued in January 2014 allows for higher foreign equity participation in weak banks subject to the PM’s approval.

However, thus far, it appears that no foreign investors have been interested in the weak banks in Viet Nam.

They proposed increased foreign ownership even 100% instead of the current cap of 30%.  

Opening up opportunities

According to economic experts, despite saturated signs in the banking system, Circular 38/2014/TT-NHNN providing for dossier, order and procedures for approving the foreign investors’ purchase of Vietnamese credit institution’s shares still offered great opportunities for foreign players in Viet Nam.

The SBV targeted to cut the number of commercial banks to only 15—17 in the next three years. The banking market would be more open and less fierce.

In addition, in spite of violent competition, foreign commercial banks in Viet Nam still own business opportunities as they could provide other services which their Vietnamese peers are unable. They could also take full advantage of their large and powerful customer number including the FDI sector.

It is not easy for foreign investors to obtain licenses to run wholly-owned foreign banks. Via M&As, they could reform weak banks and utilize braches.

SBV Deputy Governor Nguyen Phuong Thanh said that the SBV is willing to pave the favorable way and support voluntary M&As in accordance with the legal regulations in favor of sound monetary and banking system and realization of the banking restructuring project.

More mergers on the horizon

The SBV on March 23 gave the green light, in principle, to Malaysian bank - The Public Bank Berhad to turn VDP Public, its joint venture in Viet Nam co-owned with the Bank for Investment and Development of Viet Nam Joint Stock Company (BIDV), into a wholly Malaysian-owned bank after acquiring BIDV’s stake.

Earlier, in March 2015, Kasikorn, Thailand’s leading universal banking group opened a representative office in Ha Noi and HCM City after installing service network via cooperation with VietinBank and Agribank.

Other Japanese and Korean banks are also looking to set foot in Viet Nam.

VGP