Since 2008, United Overseas Bank (UOB) has been repeatedly proposing that the State Bank (SBV) upgrade it from a “foreign bank branch” into a “100 per cent foreign-owned bank”, thus affording it much greater banking rights here in Vietnam. UOB, however, has yet to receive the nod from the SBV.

As Singapore has always been one of Vietnam’s largest trading partners, UOB feel justified in pushing for this urgent licence so it can participate in the domestic banking restructuring process. UOB is currently a strategic investor in the domestic SouthernBank, holding a 15 per cent stake.

According to economist Nguyen Tri Hieu, in addition to the time-consuming process of considering licences for overseas banks looking to operate as wholly-foreign owned banks, “the number of banks, both domestic and international, is rather overwhelming at present. The SBV, as such, could be hinting that there are already enough foreign banks in the market, and as such it is hesitant to grant licences to any more foreign banks in the time to come.”

Hieu added that the country’s banking industry would gradually open up towards 2020, in line with the ASEAN Economic Community commitments, and more foreign banks would continue to enter Vietnam to explore the potential retail banking market.

The country is currently home to six wholly-foreign invested banks and four joint venture banks. In addition, there are 52 representative offices of foreign banks and 46 foreign bank branches operating in Vietnam.

These six foreign-invested banks have, for the most part, only revealed their profits through low-distribution publications, thus flying under the radar of the majority of the Vietnamese public. According to banking experts, their financial performance is such that they can often secure large-scale transactions, sell shares, purchase consultancy, issue bonds, execute foreign exchange, and offer FDI business support.

As such, this is seen to give them a leading start over local banks in terms of stout brand recognition and creditability, combined with solid management capability and business strategy. In retail banking, for example, foreign banks have a clear competitive advantage over local banks, where they have extended their network from shopping centres and supermarkets to small and medium-sized specialised stores to meet customers’ diversified credit needs.

The following figures highlight the robust stature of some of these foreign banks, which Vietnamese banks cannot compete with on an even playing field.

HSBC (Vietnam) – one of the six wholly foreign-owned banks in Vietnam, for instance, revealed in its 2014 financial results total assets of VND84.293 trillion ($3.92 billion), an increase of VND17.6 trillion ($818.6 million) compared to the end of 2013, and equity of VND10.294 trillion ($478.79 million), an increase of almost VND3.7 trillion ($172.09 million). The bank’s pre-tax profit after making bad debt provisions was reported at VND1.045 trillion ($48.6 million), while post-tax profit was VND813 billion ($37.81 million).

Standard Chartered (Vietnam) also proclaimed VND27.687 trillion ($1.287 billion) worth of total assets last year, compared with VND23.872 trillion ($1.11 billion) for 2013. The bank’s equity and post-tax profits were recorded at VND3.463 trillion ($161.07 million) and VND210 billion ($9.76 million), respectively.

Likewise, in 2014, ANZ (Vietnam) reported total assets of VND42.017 trillion ($1.954 billion), a boost of VND4.825 trillion ($224.41 million) compared to the year previous. Its equity and post-tax profit were recorded at VND4 trillion ($186.04 million) and VND543 billion ($25.25 million), respectively.

Meanwhile, Shinhan (Vietnam) reported a swell of 25.6 per cent in its total outstanding debts or equivalent to $941 million, comprising of $879 million in corporate lending and $61 million in personal lending.

The foreign banks’ promising business performance has tempted numerous overseas financial institutions to set foot in the potentially lucrative banking industry in Vietnam. In March, the central bank gave Malaysian Public Bank Berhad in-principle approval to take over a significant stake in the country’s third-biggest lender BIDV through the joint venture VID Public Bank, and transfer VID Public into a 100 per cent foreign-owned bank.

Likewise, since 2011, Thai Kasikorn has set up its network in Vietnam via two domestic state-owned banks, Vietinbank and Agribank, recently launching representative offices in both Hanoi and Ho Chi Minh City. CIMB Group Holdings BHD, Malaysia’s second biggest bank, is also rumored to join the local banking market.

In addition, other global banks have also set foot in Vietnam through the opening of representative offices and branches, such as Commonwealth Bank (Australia), ING (Netherlands), Barclays (UK), Deutsche Bank (Germany), and Sumitomo Mitsui Financial Group (Japan). Recently, BNP Paribas also won SBV’s in-principle approval to establish branches here.

By Minh Trang