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Banking & Finance

Moving in

Released at: 16:00, 28/01/2017

Moving in

Photo: Viet Tuan

Foreign banks did well in Vietnam during 2016 and more are set to arrive in the country in 2017.

by Duy Anh

2016 was as equally as tough as, if not tougher than, 2015 for Vietnam’s banking sector, with two of the greatest challenges facing the industry remaining bad debts and high credit growth. With around VND200 trillion ($8.78 billion) in bad debts parked at the Vietnam Asset Management Company (VAMC), it is critical for the private sector, including foreign investors, to participate in banking sector restructuring, which is in line with the State Bank of Vietnam (SBV)’s expectations.

On a positive note, both the central bank and banks themselves have been recognized for their efforts in bringing down lending rates to support business while maintaining foreign exchange stability. Domestic banks have been more proactive in resolving bad debts via selling them to VAMC or provisioning to cover losses. In the midst of all that, foreign banks have quietly deepened their presences in the country’s banking sector with no great fanfare.

Ups and downs

Unlike domestic banks, which must publicly report their financial statements to the SBV each quarter, the performance of foreign banks remain largely unknown as they are not subject to the same requirements. HSBC Vietnam and ANZ Vietnam were among the first to gain approval to open as wholly-owned units in Vietnam, in 2008 and 2009 respectively.

2016 was a great year for the largest foreign-owned bank in Vietnam in terms of total assets and registered capital. Mr. Pham Hong Hai, CEO of HSBC Vietnam, told VET that the bank has enjoyed an increase in customer advances reflecting continuous support in customer operations. The bank has maintained its capital strength and strong liquidity and capital, with a rather high 18 per cent capital adequacy ratio as at June 30.

Together with steady interest income of VND1.12 trillion ($49.2 million) and fee and commission income of VND327.2 billion ($14.4 million), the bank recorded impressive year-on-year growth of 47 per cent in foreign currency exchange, generating a net gain of VND448.8 billion ($19.7 million) in the first half. As at June 30, its bad debts had fallen to 0.97 per cent of its total loans, from 1.06 per cent at the end of 2015.

From such figures, HSBC Vietnam recorded a handsome after-tax profit of VND785.4 billion ($34.5 million) in the first half of 2016, an 18 per cent increase year-on-year. The Hong Kong-based bank also continued to top the list in total card payment volumes and total credit card payment volumes for the sixth year in a row, according to VISA International.

ANZ Vietnam, meanwhile, recorded modest results in the first half. Interest income fell 17.3 per cent year-on-year to VND578 billion ($25.4 million) and fee and commission income was down 5.6 per cent year-on-year to VND153.3 billion ($6.7 million). The bank would have made a loss if drastic changes in other income sources had not saved the day.

From a net loss of VND21.7 billion ($953,000) during the first half of 2015, foreign currency exchange recorded a net gain of VND163.3 billion ($7.2 million) for the bank in the first half of 2016, securing an after-tax profit of VND176.8 billion ($7.7 million) as at June 30, up 30 per cent year-on-year. Its bad debt ratio rose to 1.25 per cent from 1.16 per cent as at the beginning of the year.

Ins and outs

2016 continued to witness an increasing flow of foreign direct investment (FDI) into Vietnam, with an estimated $18.1 billion new and additional capital in the first eleven months. South Korea remained the largest investor, with 5,656 projects and $52.58 billion in capital, accounting for 30 per cent of all FDI.
Three banks joined the five existing fully foreign-owned banks: Malaysia’s Public Bank Vietnam received a license in March, its compatriot CIMB Bank Berhad, with registered capital of VND3.2 trillion ($144 million), was granted a license in August, and Woori Bank - the largest South Korean bank in terms of consolidated assets - made it eight in early November.

The lender to leading South Korean giants such as Samsung, Lotte, LG, and Posco believes that Vietnam, with its unlimited growth potential, has made the world sit up and take notice and is an important strategic market. With two existing branches in Hanoi and Ho Chi Minh City, Woori expects to open 21 branches and transaction offices nationwide over the next three years.

One way or another, the South Koreans are coming, not with K-pop but with bank branch openings. In August, BNK Busan Bank opened a branch in Ho Chi Minh City, becoming the first South Korean regional bank to stake out a presence in the south of Vietnam. Nong Hyup also made its way into the country after receiving in principle approval for a branch in Hanoi.

While some are arriving, others may be departing. ANZ Group CEO Mr. Shayne Elliot was quoted as saying to foreign media in October that the bank would look to exit its retail and wealth assets in the Philippines and Vietnam, but has no plans to do likewise in Cambodia and Laos. “Further investments do not make sense for us given our competitive position and the returns available to ANZ,” he said.

In response, an ANZ Vietnam representative told local media in early November that there are currently no plans to sell its retail and wealth businesses in Vietnam but it will continue to examine ways to improve its retail and wealth operations. Looking at its modest figures for the first half of 2016, however, the immediate future may will be a test for the bank’s long-term commitments in Vietnam.

Diversified approach

Many analysts say that foreign banks, with little understanding about Vietnam and a limited retail network, are no real threat to domestic banks. While neither targeting to dominate the local banking market nor suffer from low profits or losses, foreign banks have identified their own strategies to access undeveloped sections of the market while also turning local banks’ limitations into their own strengths.

Support for female entrepreneurs remains lacking to say the least and their existence is still underestimated in Vietnam. In 2016, Standard Chartered Bank Vietnam entered into a one-year partnership agreement with the Ho Chi Minh City Association for Women Executives & Entrepreneurs (HAWEE) to provide fast-track term loans at preferential interest rates for the Association’s corporate members.

Technological innovations are shaping developments in the banking sector but domestic banks, with limited capital and experience, have exhibited shortcomings in staying abreast of trends. Standard Chartered Bank Vietnam, with deep roots and a broad knowledge of the market, has been one step ahead by bringing the best possible convenience to customers. 

The London-headquartered bank was the first to launch a travelling app in the local market, which allows credit card holders to access 800+ airport VIP lounges worldwide, while “The Good Life” offers cardholders discounts at more than 700 merchants in Vietnam and more than 3,500 throughout ASEAN. “We are one of very few banks in Vietnam offering digital banking and are highly successful at it,” Mr. Nirukt Sapru, CEO of Standard Chartered Bank Vietnam, told VET.

Last year saw quite a few fraudulent payments plaguing domestic banks such as VPBank and the semi-private BIDV and Techcombank. With one bank employee accused of stealing funds from accounts, customer belief and loyalty have undoubtedly been challenged at these local financial institutions.

While domestic banks are now in the midst of closing loopholes, foreign banks have, in general, been quick to adapt to the circumstances. “Building a culture to fight against financial crime is the ultimate priority for HSBC Vietnam,” Mr. Hai said. For this year, “we will continue to provide training while enhancing our systems and people to detect and deter criminal activity, protecting the bank, its employees, and society against any threats.”

Real threat

Soon enough, Vietnam will see even stiffer competition from the arrival of new foreign banks. Primarily located in the larger metropolitan areas, with access to FDI enterprises and export-oriented businesses, foreign banks are at an advantage from their global connections compared to domestic banks as economic integration continues. More importantly, they are also tapping into market segments where domestic banks are standing still.

In 2017, HSBC Vietnam commits to “leveraging our international network to support the business of our clients, specifically focusing on business corridors with top FDIs in Vietnam and industry leaders, providing them with one-stop solutions while growing our retail portfolio,” Mr. Hai said. “We will continue to digitalize to further streamline our processes, deliver automation to our corporate clients and enhance our digital channels to increase customer engagement in the retail business.” 

Woori Bank isn’t about to waste too much time on its opening celebrations, and plans to boost its retail business by establishing transaction offices in northern and southern provinces and entering the credit card market in the first half of 2017. The bank also plans to connect various deposit and loan products, including mortgages, credit loans and bancassurance, offering comprehensive financial services to Vietnamese customers.

Meanwhile, “serving small and medium-sized enterprises (SMEs) will be a key task for Standard Chartered Bank Vietnam in 2017,” said Mr. Sapru. In November the bank implemented a preferential credit package worth VND330 billion ($14.5 million) in an effort to promote the business activities of SMEs in Ho Chi Minh City. The package will primarily be used to realize its Bank-Business Connectivity Program and remove financial difficulties facing businesses.

There is not much time left for domestic banks to up their game, especially following the establishment of the ASEAN Economic Community in 2015, with more foreign banks expected to arrive Vietnam. By 2020, in accordance with commitments made to the WTO, Vietnam will have to completely open the doors of its banking sector.
Those that do not make the cut will be left behind. “Only banks that really understand the needs of customers and offer superior quality services and products will win,” he believes. 

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