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Foreign-owned banks intensify competition in domestic market   2009-02-02 - VNS

Competition in the banking industry is heating up, with an increased presence this year of foreign bank branches and five new foreign-owned banks, each subsidiaries of such foreign banking giants as ANZ Bank, HSBC, and Standard Chartered.


ANZ Bank this week announced plans to open six new transaction offices in HCM City and Ha Noi, after completing registration of its new wholly foreign-owned bank in October of last year.

The new bank is expected to officially open in April.

"Local incorporation gives ANZ a broader foundation and network to meet the needs of Vietnamese customers and companies," said ANZ Viet Nam CEO Thuy Dam.

HSBC’s subsidiary bank became the first of these new foreign-owned banks to begin operations in HCM City this month, saying the local presence would enable them to improve banking services and cover a broader customer network.

The local subsidiary of Malaysia’s Hong Leong Bank is expected to commence operations in Viet Nam by the end of this year.

At a recent meeting of foreign credit institutions, State Bank of Viet Nam Governor Nguyen Van Giau said that foreign credit institutions would be treated equally to local banks, with the right to accept deposits, make loans, and offer payment and foreign exchange services like Vietnamese banks, with unlimited numbers of branch offices.

But Vietnamese banks remain disadvantaged in terms of capital, compared with foreign banks. Leading domestic banks like Agribank, Vietcombank and Vietinbank have charter capital in the range of VND11-13 trillion (US$629-743 million). Of 38 joint-stock commercial banks, those with capital in excess of VND3.4 trillion ($194.28 million) are countable on one hand.

The State Bank has regulated that commercial banks will have to maintain charter capital of VND3 trillion by the end of 2010. By the end of last year, nine smaller banks were struggling to meet the 2009 requirement that they be capitalised by at least VND1 trillion ($57 million).

By comparison, HSBC Viet Nam, with strong support from its parent bank, starts work with VND3 trillion ($171.4 million) in charter capital.

And with foreign banks’ superior business experience and governance capacity, combined with the local belief that foreign anything is better than the domestic product or service, many observers believe that the competition from foreign banks will become overwhelming.

These banks offer a full range of international and integrated banking products and solutions across institutional and corporate banking, financial markets, trade finance, SME banking and retail banking. They also offer individual customers the convenience of ATMs and mobile-banker facilities.

Standard Chartered Bank customer Thanh Mai said, "I think foreign banks have better risk management for our money because they have been in the banking business for ages."

"I like their services and their products," said ANZ Bank customer Nguyen Thi Thu Trang.

"Competition with foreign banks is unavoidable," said Nguyen Thanh Toai, deputy general director of Asia Commercial Bank. "This year, both local and foreign banks will have to compete in very fierce conditions, but foreign banks may not be able to take advantage this year due to impacts from economic downturn globally and domestically."

But, he cautioned: "That doesn’t mean local banks can relax."

Putting it more succinctly, Orient Commercial Bank general director Vo Van Chau said: "Foreign banks are not tigers, and local banks are not young rabbits."

Vietnamese banks are likely to strengthen gradually, and some will join force to hold onto market share.

Many commercial banks have already connected their ATM networks to increase convenience and keep customers, as well as expanding their branch networks and linking hands with corporate partners.

Asia Commercial Bank now maintains 186 branch offices nationwide, while Sacombank has an even more impressive 244, as well as offices in Laos and Cambodia and a representative office in China.

Some experts also believed that domestic banks would have no trouble surviving because foreign banks tended to market to a higher-income segment of the market. There were nine million bank accounts opened nationwide, most in urban areas, so the industry still had a huge potential for growth.

Former central bank governor Cao Si Kiem also noted that foreign banks were not yet familiar with the local market or with Vietnamese laws and customs, giving domestic banks some time to improve their positions.

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