VietNamNet Bridge – In the last 10 years, foreign banks have not threatened domestic banks in the monetary market. However, experts say they are preparing a new attack in an attempt to dominate the domestic market.
Foreign banks’ products limited
While domestic banks have been growing rapidly in terms of network and chartered capital, foreign banks in Vietnam have not made any recent advances.
According to the Department for Banks and Non-bank Credit Institutions under the State Bank of Vietnam, in 1997-2006, the chartered capital of credit institutions increased by 4.96 times on average, while the figure was only 2.35 for foreign banks.
The market share of foreign banks has narrowed: down from 16.6% to 9.7% in terms of total assets, from 15.9% to 9.7% in terms of mobilised capital, and from 19.8% to 8.9% in terms of outstanding loans.
Due to many reasons, including ones relating to legal framework, the level of economic development, income and Vietnamese people’s habits, products and services provided by foreign banks in Vietnam remain limited.
Most foreign banks have been focusing on several services, like lending (wholesale lending), commercial support (opening accounts in VND and foreign currencies, money remittance, letter of credit L/C, frame agreement on commercial support), funding export-import projects, or funding projects. The main clients of foreign banks are foreign-invested production and processing enterprises, and big Vietnamese companies which have good business results.
It has been very difficult for foreign banks to expand their targeted clients. While foreign banks only establish credit relations with companies with healthy financial capability, transparent information, many Vietnamese companies cannot meet the requirements. That explains why foreign banks just access domestic enterprises through contracts on syndicated loans with domestic banks.
Eyeing bigger pieces of cake
Up to now, the income for foreign banks has come mainly from lending activities and capital trading on the inter-bank market.
Statistics show that the borrowing and lending sums of foreign banks to other credit institutions in Hanoi account for 44.5% of the total assets of the banks, while the proportion in state-owned banks is 1.2%. Foreign banks mainly lend in foreign currencies, and they borrow mainly in VND.
Experts have said that the profit of foreign banks will reduce as domestic banks want to lower the percentage of borrowing from other credit institutions. This will force foreign banks to apply other measures to restructure their income.
The experts have said that foreign banks plan to expand their services, offering services on the financial market, services on card and commercial support. Especially, foreign banks will pay more attention to retail services, as they begin eyeing the market with 85mil people.
The Hong Kong and Shanghai Banking Corporation (HSBC) and Standard Chartered have been leading in providing retail services with the initial services of asset and transaction management for small- and medium-size enterprises and individuals.
In the time to come, foreign banks will introduce other products, including lending to serve the consumption demand, lending to individual clients (foreigners living and working in Vietnam, and Vietnamese high income earners) and providing credit to small- and medium-size enterprises.
They will also provide modern products like helping Vietnamese enterprises access the international capital market, implementing swap transactions and other derivatives.
It is clear that foreign banks have outstanding advantages over domestic banks in providing such high-grade services. And it is clear that foreign banks do not intend to compete with domestic banks in terms of quantity of services, but try to provide better quality services.
(Source: Viet Nam Net) | 
