Foreign banks bet on Vietnam

Foreign banks are putting their bets on Vietnam, attracted by its booming economy and a large youthful population eager to have all the consumer goods and services the modern world has to offer.

On Sunday, Vietnam formally opens its doors wider to a queue of banks from around the world under market liberalisation pledges it made on its accession to the World Trade Organisation (WTO) in January.

These banks will now be allowed to set up wholly-owned units here, making it easier to open branches and so build a client base in a communist country where banking services are in their infancy and cash is still the favoured medium.

Only six million people, out of a population of 84 million, have a bank account.

"Retail banking services, consumer credit, life insurance, these are all only just beginning (in Vietnam)," said Jean-Pierre Bernard, regional officer for Southeast Asia and India with BNP-Paribas of France.
If the market is small now, the prospects are good -- the economy is growing at more than 8.0% and 60% of the population is under 30 years old.

This new generation is demanding a higher standard of living as the country at last emerges from the shadow of the devastating war against the United States and doctrinaire communist central planning.

"Before, our parents tried to save for the bad days. (Now) a new generation has come, of people born after the war, after 1975," said Ly Xuan Hai, president of Asia Commercial Bank.
"Their behavior is quite different. They are ready to spend more for luxury -- they want to be independent, to have a separate house, separate apartments, to live far from their parents," he said.

Foreign banks have been gradually building a presence here for some time, finding local partners so that they could hit the road running when Vietnam joined the WTO and opened up its economy.

BNP Paribas has tied up with Orient Commercial Bank, ANZ of Australia joined with Sacombank, while regional giants Standard Chartered and HSBC partnered Asia Commercial Bank and Techcombank.

For the moment, foreign investors can only take up to a 10% stake in a local bank but they are hopeful that that limit could be raised, possibly this year, to 20%.

"Everyone who took 10% (in their partners) did so with a view to increasing that level to 20% or even more," said Bernard of BNP-Paribas.

Foreign investors are also looking forward to the privatisation of several of the top state-owned banks such as Vietcombank, which handles trade finance and could be divested this year.
For the foreign partner, a tie-up with locals gives them access to the market while the home banks get much needed expertise in products, management and technology.

"Shops have to be equipped with credit card facilities and these facilities have to be linked to the bank. This infrastructure is at an early stage of development," said Noritaka Akamatsu, a financial sector expert with the World Bank in Vietnam.

"Some banks, after (getting experience) with the local banks, their name may be better recognised locally, they may feel more confident that they can do the business on their own," Akamatsu noted.

That prospect is likely to be of some concern to the local banks who will have to up their game or risk being left behind as their foreign peers get greater access to the market.

"The local banks will find it very difficult to compete if they don't improve their practices and their technology and management," said Jonathan Pincus, economist with the United Nations Development Programme in Vietnam.

"Local banks have one really important advantage: they have local contacts and knowledge. They have the knowledge of what Vietnamese need and want, and banking is about relationships," Pincus said.

"They've got a breathing space but they need to act quickly."

Source: AFP