Local banks face off against foreign competitors

HCM CITY — Vietnamese banks need to make further efforts to exploit all advantages available to develop in the face of severe competition from foreign banks, analysts say.

Under the 2001 Viet Nam-US Trade Agreement and Viet Nam’s WTO commitments, fully foreign-invested banks were allowed to be established since 2008.

Foreign banks offer a vast variety of services and have massive funds, modern technologies and management, and skilled workers.

Nguyen Huu Bang of the joint stock Bank for Foreign Trade of Viet Nam (Vietcombank) said foreign banks had set up six joint-venture banks and 40 branches in the country.

The Hong Kong Shanghai Banking Corporation (HSBC) has set up a fully-owned bank incorporated in the country with more on the way as branches of foreign banks convert into wholly-owned entities.

But the analysts said local banks still had advantages that would enable them to take on their foreign rivals. Most foreign banks offer retail services like cards and global money transfer.

But their business remains modest since their customers are limited, mainly foreign companies and individuals and Vietnamese high-income earners, according to Bang.

"Because operating costs for foreign bank branches as well as joint-venture banks are very high, their fees are also much higher than Vietnamese banks’ for similar services," he said.

For instance, Vietcombank charges VND100,000 for an ATM card while it is free at Agribank; foreign banks charge at least VND150,000.

At Vietcombank, the minimum balance required is only VND50,000 (US$2.8) while at foreign banks it is at least US$100.

"Foreign banks have modern banking technologies but they cannot open many branches because of their high costs and choosiness in accepting clientele," Bang said.

"As a result, half of foreign and joint-venture banks have branches either in Ha Noi or HCM City. Only four or five have branches at both places."

On the other hand, all Vietnamese banks had dozens of branches, giving them a reach well beyond the major urban centres, he said.

Agribank leads with 2,200 branches across the country, followed by Vietcombank with over 200, the Joint Stock Commercial Bank for Industry and Trade (Vietinbank) with 150, and Mekong Housing Development Bank with nearly 160.

Vietnamese banks have nearly 800 ATMs at very handy locations like major hotels, airports and supermarkets, meaning that when foreign banks seek to develop their ATM networks in future, they would find it difficult to get good locations.

"Having an understanding of people’s customs and habits is another advantage Vietnamese banks have," Bang said.

More effort needed

But to make full use of these comparative advantages, he said, domestic banks needed to tweak their business strategies, with focus on establishing close co-operation among themselves and other service providers.

He cited the instance of ATMs, saying domestic banks had a large ATM network but would make no profit if they used these only for withdrawing cash as they were doing now.

"They need to fully exploit other functions like payments and transfers if they want to earn from the ATM business," he said. "To do this, they have to co-operate with each other and with the insurance, mobile-phone and water and electricity sectors."

They should use identical software for their services activities to facilitate co-operation, reducing time and costs.

vietnamnews.vnagency.com.vn