Foreign banks expand operations in Vietnam

11-Mar-2015 Intellasia | Bao Dau Tu | 6:00 AM Print This Post

Many foreign banks have been setting foot into Vietnam’s market to prepare for operation expansion when the conditions are ripe.

The Thailand based bank Kasikorn has recently opened two representative offices in Hanoi and Hochiminh City last week. general director of the bank Preedee Dawchai said that the office opening is to enhance the flexibility in business management of customers who want to enter Vietnam’s market. Kasikorn also shared its intention to launch more offices and branches in Vietnam when the State Bank of Vietnam (SBV) allows it.

In addition to the presence of Kasikorn, there are over 50 representative offices of foreign banks in Vietnam. Moreover, there are over 50 branches of foreign banks, five banks with 100 percent foreign capital and a number of joint-venture banks.

Notably, in the previous years, the number of foreign banks’ representative offices and branches entering Vietnam were mainly from the countries and territories which largely invest in Vietnam such as Japan, Korea, China and Taiwan, etc. However, there have been more and more banks from the Association of Southeast Asian Nations (Asean) expanding operations in Vietnam, including the Development Bank of Singapore (DBS) and Maybank (Malaysia), etc. It seems that the credit institutions in the region are ready to wait for opportunities coming from the AEAN Economic Community (AEC), which is planned to be formed in the end of 2015.

Not only launching representative offices or branches in Vietnam, in the previous time, some banks in the region also wanted to acquire 100 percent equity of Vietnamese weak banks to establish 100 percent foreign capital banks in Vietnam. For example, the United Overseas Bank Singapore (UOB) and a Malaysian bank once offered to buy 100 percent stake of Global Petro Bank (GPBank). Although the acquisition was not successful, it does not mean that the regional banks are not interested in the banking market of Vietnam.

Keith Pogson, Asia-Pacific Financial Services Leader of Ernst & Young explained that the Vietnam’s banking market is still attractive to foreign investors. However, investors in Asean region should well consider investing in Vietnamese weak banks. The reason is, the AEC will be formed at the end of 2015, and banks in the region will probably be free for establishment in Vietnam by 2020. Thus, investors will consider whether to purchase a weak bank and spend at least three to four years without profit to recover and develop, or continue to wait, as 2020 is not far from the present time.

Regarding this issue, Dr Phan Minh Ngoc, an economist said that AEC aims to integrate domestic banking sector in 2020, to create an open banking system that allows Asean banks to operate equally with local banks of any member in the region.

In fact, not only banks in Asean region, many banks from the US, Japan, Korea, China and Europe, etc. are doing research on the Vietnam’s market, to be ready to welcome new opportunities from AEC and the Trans-Pacific Partnership (TPP), etc.

The increasing presence of foreign banks in Vietnam will bring Vietnam a necessary volume of capital which creates motivation for development. However, this also creates enormous competitive pressure on the banking system. Currently, the foreign development investment (FDI) enterprises account for almost 70 percent export volume of the country. However, most of them are potential customers of foreign banks. Furthermore, foreign banks are also targeting the group of domestic enterprises. This is a big challenge for domestic banks.

In the restructuring scheme of the banking system, SBV has set a target to form one or two regional-scaled banks. However, the current sizes of major Vietnamese banks are still far beyond the size of large banks in the region. Thus, to be competitive, the most feasible solution is to carry out mergers and acquisitions (M&A) activities among banks to expand operations.

 


Category: Finance, Vietnam

Print This Post

Comments are closed.