Foreign banks gearing up to expand retail banking services

Foreign banks, which up until now only focused on wholesale services and mostly served foreign clients, have been trying to expand their market share by providing retail banking services.

One of the commitments Vietnam made when it officially joined the World Trade Organisation (WTO), is that from January 1, 2011, it will allow foreign banks to operate like domestic banks, i.e. that foreign banks will have the right to provide the banking services which domestic have the right to. This means that from 2011, foreign banks and domestic banks will operate on a levelled playfield.

Representatives from foreign banks all have expressed their satisfaction about the business environment in Vietnam, saying that the banks are gearing up to expand retail services. This also means that the market shares being held by domestic banks have been threatened by foreign banks.

In mid October, Citibank officially launched the retail banking service in Hanoi. Some days ago, Standard Chartered Bank also made a similar move. In late September 2010, the Hong Kong and Shanghai Banking Corporation (HSBC) opened its fifth branch in Vietnam.

The fact that foreign banks continuously open new branches and transaction offices in Vietnam shows that the banks keep optimistic about the business environment in Vietnam.

Brett Krause, General Director of Citibank Vietnam, said the competition among banks will benefit customers. Ashok Sud, General Director of Standard Chartered Bank has also expressed his satisfaction about a levelled play field for both foreign and domestic banks. “We are glad that our basic expectations have been realized. Now we have the right to provide all the banking products and services we want to,” he said.

Anticipating the stiff competition to be triggered by the market opening as of January 1, 2011, foreign banks are rushing to scramble for the retail market share. Mr Ashok Sud said Standard Chartered Bank is planning to expand its presence in Vietnam both in width and in depth. According to the bank, by 2015-2016, the average income per capita is estimated to reach $2000 per annum, which will lead to the higher proportion of people using banking services.

The current story that only 10 percent of Vietnamese population uses banking services will not be heard of after five or 10 more years. At present, every Vietnamese person has not only one, but two or three mobile phone numbers. And the same scenario will also happen with banking services in the near future, according to Mr Ashok Sud.

Currently, domestic banks are still holding 90 percent of the retail market share in Vietnam. However, foreign banks would be their fierce competitors as they are trying to provide services with high technologies which domestic banks do not have. Standard Chartered Bank, for example, has the branches which operate in non-office hours and on weekend. The bank will also be the first foreign bank which joins the card alliance Smartlink from January 2011.

Meanwhile, Citimart has been targeting young and dynamic clients, who love high technologies, by providing retail banking services through Internet and mobile phones. Especially, though foreign banks do not hold big market share, they have obtained the most lucrative market segment: their clients are mainly VIPs, high income earners (who have the monthly income of 10 million dong and higher).

While foreign banks are racing against the time to expand their business scale, it seems that domestic banks still keep indifferent to the race. A finance expert has warned that some kinds of services which are being provided by domestic banks such as international payment, project funding may fall into the hands of foreign banks in the future, because foreign banks have high technologies, good corporate governance and better financial capability.

The expert said that the biggest banks in Vietnam now focus on serving state owned enterprises, while private and foreign invested enterprises find it hard to access bank capital. Most of joint ventures and 100 percent foreign invested enterprises are still the clients of foreign banks.

Dollar dearth dampens Vietnamese dong

Due to concerns about a possible year-end dollar drought, and rumors about expanding the exchange rate between the Vietnamese dong the dollar, the unofficial exchange rate rose sharply this week.

Meanwhile, firms find it hard to buy dollars at prices fixed by the State Bank of Vietnam.

The dollar rose as high as VND20,020 at gold shops in Hanoi on Wednesday, compared to 19,900-19,980 on Monday. Meanwhile, commercial banks were selling dollars at 19,400- 19,500.

Economist Ngo Tri Long, former deputy head of the Market and Price Research Institute, gold prices have affected the exchange rate. “With the high price of gold, some people have accumulated dollars to smuggle gold, and then resell it on the domestic market at a profit,” Long said.

The domestic price of gold rose to VND33.09 million per tael on Thursday morning, compared to VND32.97 million on Wednesday, according to SJC, the country’s top gold trader.

The dollar price also increased as businesses scrambled to accumulate dollars to repay greenback loans taken out early in the year. Importers need dollars to serve production and business, which often jumps at the end of the year.

Meanwhile, exporters who are paid in dollars by foreign partners have only agreed to sell them to banks at high prices, or keep them in deposit.

Nguyen Manh, director of the business department at Bank for Investment and Development of Vietnam, said people are accumulating dollars due to worries about another devaluation of the dong.

The State Bank of Vietnam’s reference rate at 18,932 has not changed since the dong was devalued by 2 percent in August. The currency may fluctuate up to 3 percent on either side of the rate, which means it can be traded as low as 19,500 per dollar.

Many firms said it is difficult for them to buy dollars at commercial banks, and some reported having to pay additional fees. As a result, the actual market price is often higher than the official reference rate.

Dao Duy Kha, vice general director of the Vietnam Plastics Corporation, said: “Firms have to queue up for dollars at commercial banks to cover imports. Banks were offering dollars at the official rates but requesting additional fees from buyers, bringing the actual rate to as approximately high as unofficial market prices.”

His firm’s exports are small, so its greenback earnings are not enough to cover import materials, Kha said.

The central bank governor Nguyen Van Giau said the central bank has no plans to adjust the dong exchange rate against the US dollar, even though the dong’s value has been dropping on the unofficial market.

Jayant Menon, an economist from the Asian Development Bank, said Vietnam is running a trade deficit so implementing some sort of controlled depreciation of the currency to improve competitiveness is not a bad idea. However, Menon said that erratic drops in the value of the dong, caused by lack of confidence, pose a cause for concern.

“In the current context of consumer price hikes, widening exchange rates (between the dong and dollar) could push up inflation,” said economist Long. “The country should be very careful in considering devaluation at this point,” he said.