Entrepreneurs are rushing to establish new banks, lured by the prospect of high returns on investment, though analysts warn the financial sector has its own hidden pitfalls.
The State Bank of Viet Nam has so far this year received more than 20 applications to open a new bank, but regulators are taking their time, scrutinising every line of the submitted documents.
Central bank officials are worried that investors are focusing too much on profits and capital generated via the stock market, and not enough on the risks. To date, 17 institutes have closed due to huge losses and impending bankruptcy.
Experts warn that competition is only going to get tougher with more foreign players entering the market over the next for years under World Trade Organisation commitments.
Ly Xuan Hai, general director of Asia Commercial Bank, admits corporate and consumer clients are more eager to bank with foreign financial institutes because they offer better services.
Newly established domestic banks will be the most vulnerable to these bigger companies, which can attract the best managers via competitive salaries, invest in the best technology and offer the best training opportunities, said Hai.
Nguyen Trong Nghia, general secretary of the Viet Nam Bankers’ Association, said domestic players do hold some advantages: better understanding of Vietnamese consumers and the ability to tap rural markets.
However, only the Bank for Agriculture and Rural Development (Agribank) has taken advantage of this latter point, because of credit risks associated with this segment of the market.
In addition, most commercial banks have focused on key markets like Ha Noi and HCM City, causing redundancy and tougher regionalised competition, said Nghia. Again, this is a problem for startups who need to attract customers quickly in order to stay afloat.
Experts also warn of overly aggressive measures to raise charter capital, which often results in banks cutting profit margins.
Source: VNA
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