Movements in the financial industry

Vietnam’s top insurer, the Bao Viet Insurance Corporation, just recently announced a plan to establish its own bank this year, leading the charge of corporations now preparing to join the country’s banking and finance sector.

While the reasons for the charge are mixed, there appears to be a need to exercise a degree of control over such ventures.

Large state owned corporations like Electricity of Vietnam (EVN), the Vietnam Oil & Gas Corporation (PetroVietnam), and the Vietnam Post and Telematics Corporation (VNPT) are looking to join Bao Viet in setting up their own bank or investing in joint stock commercial banks in order to exploit the potential in the capital market.

As part of their strategies, EVN, PetroVietnam, VNPT and Bao Viet are looking to develop powerful groups and, within this model, setting up their own banks is a strategic goal to support capital mobilisation, providing transaction and credit services for the subsidiaries of these groups.

G-Bank, formerly known as the Ninh Binh Bank, plans to increase its chartered capital from 500 billion VND to 1 trillion VND next year as part of its change of focus from rural to urban areas. Previously a small rural bank with assets of 250 billion VND, the bank has now partnered with the PetroVietnam, with the corporation contributing up to 40% of its registered capital, and the total assets of the bank now stand at 2,000 billion VND. In a speech at its opening ceremony, the G-Bank Chairman said that both parties are pleased with the arrangement and it is a clear indication that PetroVietnam has ambitions to establish its own bank in the future.
The partnership between PetroVietnam and Ninh Binh Bank is expected to bring benefits to both sides. “The partnership with PetroVietnam is a chance to make this small bank’s dream come true once it partners with such a large and powerful corporation like PetroVietnam” said Mr Phan Duc Trung, General Director of G-Bank. PetroVietnam, he said, wishes to establish a financial organisation as part of its group and the arrangement with G-Bank was its desired choice.

At a financial and capital markets conference organised by EuroEvents, in cooperation with the Ministry of Finance, on January 22 and 23, Mr Hoang Van Hoan, Vice President of PetroVietnam, announced a plan to set up a petroleum bank in the second quarter of this year. With severe competition already seen among domestic and foreign commercial banks in the market, the launch of new banks will be a breath of fresh air in a banking and finance sector previously dominated by major players like Vietcombank, BIDV, ICB and Agribank.

The recent Government Decree No 141 obliges all joint stock, joint venture and foreign invested banks to have chartered capital of 1 trillion VND by 2008 and 3 trillion VND by 2010. Institutions that fail to do so may lose their licence. State owned commercial banks, meanwhile, are required to have chartered capital of 3 trillion VND by 2008.
With initial registered capital of 165 billion VND, An Binh Bank is pioneering the way in co-operating with large partners like EVN, PVFC, and Vinamilk, to increase its total capital to 1,130 billion VND. “An Binh is among the top ten joint stock commercial banks in terms of total registered capital,” according to Mr Nguyen Hoai Anh, Deputy General Director and Director of the Hanoi Branch.

EVN is a major state owned corporation with enormous financial capability, with capital mobilisation reaching 140,000 billion VND every year. “If EVN can transfer just a small amount of its capital volume through An Binh Bank, then we will have very large total assets,” said Mr Hoai Anh.

But is setting up a partnership with major corporations a wise choice? Vietnam’s banking and finance and market is still small but has potential for every player. Major banks and even foreign banks cannot cater to all customers. Those of the large state owned banks are mainly state owned enterprises, while the customers of foreign banks in Vietnam tend to be foreign owned enterprises.
According to Mr Hoai Anh, the four state owned commercial banks (SOCBs) hold a 70% market share in the banking sector.

In the process of global integration and under Vietnam’s WTO commitments, Prime Minister Nguyen Tan Dung has urged four SOCBs – the Bank for Foreign Trade of Vietnam (Vietcombank), the Mekong Housing Bank (MHB), the Bank for Investment and Development of Vietnam (BIDV) and the Industrial and Commercial Bank of Vietnam (Incombank) - to prepare for equitisation, in a bid to restructure the banks in the face of competition from foreign banks as the market opens up to fairer competition. Whether small players and large players will have an equal chance remains in question.

Mr Hoai Anh believes that both large banks and small banks have their own particular advantages. “Foreign banks have been providing services to foreign owned enterprises and high income earners with high fees, while domestic banks compete well with their simple banking services and reasonable fees.”

Together with the rapid development of the banking and finance sector and with a population exceeding 80 million people and annual economic growth of more than 8%, Vietnam has become increasingly in need of medium and long term capital sources to serve development.
Realising the capital demand of Vietnam’s financial and banking market, major state owned corporations have been looking for banks in a bid to expand operations into the banking sector and generate more profits. However, there are two kinds of benefit: short term and long term, according to Mr Trung from G-bank. Co-operating with small banks is just a springboard for the corporations in pursuing a long term ambition. Realising this ambition “may take time and will depend on many external factors,” said Mr Trung.

When VET asked Mr Hoai Anh about the possibility of major corporations like EVN setting up their own banks, he said that it’s difficult for major corporations to establish a bank because there is a shortage of high level human resources in the banking sector.

According to banking regulations, investors are subject to a limitation of 40% on capital contributions in a bank, so instead of opening their own bank it’s much easier for corporations like EVN to increase capital contributions to the maximum level. Banks are required to act as an independent entity and must not be a tool of any corporation. “The 40% limitation on capital contribution is acceptable because the banking sector needs to be transparent,” said Mr Hoai Anh.

Following the trend of setting up its own bank in Vietnam, a reliable source from the Vietnam Postal Savings Service Company (VPSC) - a subsidiary of VNPT - said that the company is planning to establish the Postal Bank. When VET asked Mr Nguyen Van Gam, Director of VPSC, about this plan he declined to provide any further information.

A recent survey conducted by ACNielson on personal finance management trends showed that banks in Vietnam have failed to penetrate the lending market. Conducted on 1,000 randomly selected respondents aged 18 to 50 in major cities like Hanoi and Ho Chi Minh City, only 2% said they have ever taken out a loan from a financial institution. So borrowing money from banks is not a common practice in Vietnam and people prefer to save for major purchases, pay in cash or urgent cases borrow money from friends or relatives.

The survey provides a valuable tool for Vietnamese banks to further understand their customers’ preferences and choice as well as future requirements, enabling the banks to plan strategies to launch new services to attract more customers.

The banking and finance market is still a fertile land for banks to do business, but changing the behaviour and habits of personal finance management is a task that banks must undertake in order to attract more customers.

Whether they target corporate or individual customers, banks in Vietnam must focus on service and product provision if they are to take a worthwhile stake in the country’s burgeoning banking and finance sector.

Source: VET