VietNamNet Bridge - Some branches of foreign banks in Vietnam have applied for conversion into banks with 100% foreign capital.

Foreign banks are flocking to Vietnam. Specifically, this year Kasikorn Bank (Thailand) has opened two representative offices in Hanoi and HCM City.

Public Bank Berhad (Malaysia) has completed procedures to become the 6th wholly-foreign owned bank in Vietnam. DBS Bank (Singapore) and Maybank (Malaysia) have opened more branches in Vietnam. UOB Bank (Singapore) has asked to upgrade from a branch into a wholly-foreign owned bank.

Dr. Can Van Luc, Deputy General Director of the Bank for Investment and Development of Vietnam (BIDV), said that the number of foreign banks entering Vietnam will increase in the time to come.

Statistics of Dr. Nguyen Viet Loi, Director of Institute of Strategic and Financial Policies showed that, since Vietnam joined the WTO, the number of foreign bank branches has increased 51.4%. Loi said that once the ASEAN Economic Community (AEC) is established, foreign banks will more deeply penetrate the Vietnamese market.

To be fair, the market share of foreign banks in Vietnam is still small. However, many economists believe that foreign banks have begun to understand the local market, with abundant capital, products of high quality, internal governance and professional effectiveness, so the ability to expand the market share in the long term is very large.

Currently, the average size of the four largest commercial banks in Vietnam is only $30-$35 billion, while the size of the big banks in Thailand and Indonesia amounts to $70 billion. The index of the quality of governance of many banks in the region also is double that of Vietnamese banks. Therefore, the risk of domestic banks is very large.

Under the Trans-Pacific Partnership (TPP), the banks in TPP bloc will provide cross-border services without establishing a commercial presence in member countries. This will create pressure on domestic banks.

Mr. Bui Huy Tho from the Department of Licence for Credit Institutions and Banking Activities also said that the wider and deeper participation of foreign banks puts the domestic banking system in danger as they gradually lose advantage in retail banking services.

While banks from neighboring countries are strengthening their presence in Vietnam, domestic banks have not been popular abroad.

Among banks in member states of the Association of Southeast Asian Nations (ASEAN), Maybank of Malaysia, Bangkok Bank of Thailand and UOB of Singapore operate in seven member countries.

Many banks have large proportion of assets outside the national territory. For example, OCBC of Singapore has 60% of total loan balances in external markets. Meanwhile, Vietnamese banks still rely on 90% in the domestic market.

Dr. Phan Hong Mai from the Institute of Banking - Finance, National Economic University, said that when Vietnam further opens the banking market, it is highly possible that local banks will be taken over by regional banks under various forms.

Therefore, to prepare for competition, domestic banks need to expand their scale. To do this, the central bank of Vietnam should take into account the early relaxation of ownership rates of foreign investors.

Recently, leaders of many domestic banks as VietinBank and Vietcombank have asked the Government to consider relaxing the ownership ratios of foreign partners in the banking sector.

However, Dr. Can Van Luc warned that this move will bring about many challenges in monitoring these banks.

Son Tung