Vietnam Financial Review

Vietnams Retail Banking Report

Wednesday, 12 January 2011

This publication is partly cited from FineIntel’s Industry Update. Our monthly industry update is a publication designed to provide meaningful insight into today’s industries in Vietnam. We encourage our readers to submit suggestions for topics that they would like see covered in future issues. While FineIntel can not cover each and every topic, we will do our best to provide the fullest coverage possible.

This publication is partly cited from FineIntel’s Industry Update. Our monthly industry update is a publication designed to provide meaningful insight into today’s industries in Vietnam. We encourage our readers to submit suggestions for topics that they would like see covered in future issues. While FineIntel can not cover each and every topic, we will do our best to provide the fullest coverage possible. Market overview Vietnam’s consumer banking market is growing and changing rapidly in both quality and quantity. At the end of 2009, some 20 percent of the population had bank accounts but only half of these actively use banking consumer services. Available banking products are limited and cash still dominates as a payment method, with credit cards only being in the hands of a small fraction of the population.

Vietnam’s retail banking development is still in its infancy. After 2010, retailing is expected to become one of the major operations of the banking services market. Despite strong development, the retail banking services of Vietnamese commercial banks remains weak because of the low competitiveness of service products. Foreign and Vietnamese owned banks have developed different modernization strategies. Foreign banks namely ANZ, HSBC, Standard Chartered, UOB, SMBC, Deutsche Bank occupy the market through becoming strategic shareholders of some local joint stock banks. Therefore, Vietnamese banks need to diversify the retail banking products and boost their application of information technology, and develop core products to build brand equity. In the past, the scope of foreign banks has been limited due to a geographical restriction of a single branch per city. Greater flexibility for foreign banks has arrived because of Vietnam’s accession to the World Trade Organization (WTO). One of the commitments of Vietnam upon joining the WTO is that from January 1, 2011, foreign banks will be allowed to operate on par with domestic banks. This means foreign banks will have the same full rights to providing banking services, which domestic banks currently have. Currently, domestic banks have around 90 percent share of the retail market in Vietnam. However, foreign banks are fast becoming strong competitors in the banking retail market by providing services with high technologies, which domestic banks do not have.

According to Nielsen’s survey, the average Vietnamese person uses an ATM machine 0.5 times per week. Changing consumer behavior to suit a credit-based rather than a cash-based economy seems a long way off. Market size In early 2003, Vietnam had 5 state-owned commercial banks (SOCBs), 38 joint stock commercial banks (JSCBs), 30 branches of foreign banks (ANZ, HSBC, Standard Chartered Bank, etc), 5 joint venture banks, over 50 representative offices of foreign credit institutions, financial companies, financial leasing companies and close to 1000 people’s credit funds (PCFs). According to the State Bank of Vietnam (SBV), at the end of 2009, 100 banks in total actively operate in Vietnam’s banking system, including 43 domestic commercial banks, 47 foreign bank branches, 5 foreign-owned banks and 5 joint ventures.

Although Vietnam has witnessed rapid development in recent years, the scale of retail banking in Vietnam remains small. The total value of bank assets at the end of 2006 was estimated at US$75 billion, or 123 percent of GDP. Meanwhile, the figures were US$226 billion (110 percent) in Thailand and US$302 billion (195 percent) in Malaysia. At that time, less than 10 percent of the Vietnamese population used banking services. However, this number has grown remarkably in two years. The value of total bank assets increased from US$100.4 billion to US$116.0 billion from 2008 to 2009. Almost all assets were in the form of client loans, with only small amount consisting of bonds and other assets. According to McKinsey’s report, the retail-banking turnover may grow beyond 25 percent in the next 5-10 years, turning Vietnam into one of the markets with the highest growth rates in Asia. This results as a combination of strong economic growth, higher household incomes and the low penetration of banking services. McKinsey showed that over 70 percent of households in cities have an annual average income of VND57 million (US$3,562). Local market share In terms of the numbers of branches, Agribank is the largest organization, with a presence in 115 locations. The other
http://www.vfr.vn Generated: 20 March, 2012, 05:05

Vietnam Financial Review

SOCBs also have large networks by local standards. The Bank for Investment and Development of Vietnam (BIDV) has 103; Vietnam Banking for Social Policies (VBSP), 65; Vietnam Development Bank (VDB), 62; and Mekong Housing Bank, 32. Of the JSCBs, the organizations that have over 25 branches are Maritime Bank, 26; Techcombank, 38; Vietnam International Bank (VIB), 42; Sacombank, 59; Eximbank, 35; Asia Commercial Bank (ACB), 54; and Vietnam’s Eastern Asia Commercial Bank (EAB), 28. None of the joint venture banks have more than five branches. SOCBs hold more than two-thirds of Vietnamese banking assets, deposits and loans. Agribank represents the largest share of the four leading SOCBs. The other big players include BIDV, VietcomBank, and VietinBank. Established in 1988, Agribank is a leading commercial bank and plays a decisive role in capital investment in the agricultural and rural economy, as well as other sectors of Vietnam’s overall economy. BIDV, originally established as Bank for Construction of Vietnam in 1957, was the first of the four largest SOCBs to be corporatized. VietcomBank is the oldest commercial bank for external affairs in Vietnam and was the first bank in Vietnam to have a centralized capital management structure.

A large portion of Agribank’s total assets demonstrates that some of Vietnam’s biggest unmet banking opportunities lie in rural communities and provincial villages, where three-quarters of the population reside, 70 percent of its small and midsize enterprises (SMEs) are based, and where hunger for credit is strong. With the government holding more sway with state-owned banks such as AgriBank, for which it has set a 20 percent credit growth target in 2010, we expect their market share to be further eroded by the JSCBs. Market perspective 60 percent of Vietnam’s population of 87 million is under 35 years old and there are about 32 million people living and working in urban areas. These numbers mean that there are enormous opportunities for banks, both local and foreign, to offer innovative services and products. Above all, international banks can soon look forward to participating on equal terms. Vietnam agreed late last year to open its economy – including its financial services sector – to global competition, under World Trade Organization rules. Leading European banks including HSBC, Standard Chartered, Deutsche Bank and BNP Paribas, and major Asia-Pacific institutions like ANZ Bank, Cathay Bank and OCBC Bank are strengthening their ties with local institutions and opening independent branches. For now, a foreign bank willing to hold on to its investment for a minimum of five years may acquire up to 15 percent of the equity in a Vietnamese partner bank, with total foreign ownership in a local bank capped at 30 percent. However, those constraints will likely ease in coming years, giving early entrants a head start on the competition. By 2010, international banks will be permitted to accept local-currency deposits from ordinary consumers on the same terms as their domestic competitors. The expected tightening of monetary policy in 2010 will undoubtedly hurt the Vietnamese banking sector, with SOCB particularly at risk. Nonetheless, we expect further growth in the sector in coming years with an increased participation of foreign players adding pressure to domestic banks.

http://www.vfr.vn

Generated: 20 March, 2012, 05:05