AEC creates banking conundrum for Vietnam

“Singaporean based United Overseas Bank (UOB) has also submitted an application to upgrade a wholly owned branch to foreign bank status,” said BIDV Deputy General Director PhD Can Van Luc.

Luc said the attentiveness of foreign banks to entry into the Vietnamese market is a natural outgrowth of ASEAN and global integration, good for the economy and was fully anticipated. 

“In actuality,” he said the number of foreign banks currently in the market is less than had been forecast and their market share to-date remains relatively modest to that anticipated.

In addition, the Development Bank of Singapore (DBS) and Maybank, Malaysia’s largest financial services group and the leading banking group in Southeast Asia are two new faces that have appeared on the banking landscape.

Statistics published by the Institute of Strategic and Financial Policies in turn show since joining the World Trade Organization the number of foreign banks with a presence in Vietnam has jumped by an unpretentious 51.4%.

“Logically it just makes sense that the establishment of the ASEAN Economic Community (AEC) at year’s end will give rise to yet a further rise in the number of foreign banks,” said the institute’s director PhD Nguyen Viet Loi.

“There is still a long way to go and a lot of upside in the financial services and banking industry before the nation can be considered fully integrated,” Loi emphasised.

For his part, Mr Bui Huy Tho from the Department of Licence for Credit Institutions and Banking Activities expressed concern the nation’s domestic banks won’t be able to compete with their better managed foreign counterparts.

“Foreign banks will most likely muscle their way into the Vietnamese market and dominate the retail banking services segment in just a relatively short interlude,” said Tho.

Meanwhile Tho sees little chance of domestic banks making any appreciable headway into foreign markets saying they have not been very popular and have had limited to no success abroad.

He said Malaysia’s Maybank and Singapore’s UOB seem to be the two most active banks making moves to dominate the ASEAN region. Both currently have established banks in seven out of the total of 10 ASEAN member nations.

Dr Phan Hong Mai from the Institute of Banking-Finance, National Economic University shares the same view. He says it’s likely that large regional banks will swallow up Vietnam’s domestic banks through a series of acquisitions and mergers.

Mai revealed bank officers from VietinBank and Vietcombank have already submitted requests to allow for greater foreign ownership ratios so as to allow them to position to meet the competitive conundrum created by integration.