Foreign giants expand business in Vietnam’s finance sector

At a recent meeting with Deputy Prime Minister Vuong Dinh Hue, Yoon Jong-kyoo, chairman and CEO of South Korean’s Kookmin Financial Group, said that his group will invest an addition of more than US$110 million to expand its activities in Vietnam as it sees the market a huge potential for growth.
Accordingly, the major Korean group will open its second bank branch in Hanoi after launching its first one in Ho Chi Minh City in 2011. Earlier, Kookmin also enlarged its investment in Vietnam by increasing the capital of its Ho Chi Minh City branch from US$36 million in 2013 to US$70 million now.
Late last year, Kookmin, which has more than 1,130 domestic branches and four overseas ones with over 30 million clients, also spent more than US$30 million to acquire Maritime Bank Securities and renamed it KB Securities Vietnam JSC.
Another Korean bank - Woori Bank – has recently announced to increase charter capital from VND3 trillion (US$12.66 million) to VND4.6 trillion (US$195.4 million), becoming the second largest wholly foreign owned bank in Vietnam just behind HSBC by capital.
This year also saw Bank of China (Hong Kong) Limited received permission of the State Bank of Vietnam (SBV) to increase its charter capital from US$80 million to US$100 million.
The SBV also allowed the Hanoi branch of NongHyup Bank to increase its charter capital from US$35 million to US$80 million in the first half of this year.
Besides the charter capital, foreign banks in Vietnam have been also expanding their transaction networks in a bid to increase market share, especially in the retail banking sector.
Shinhan Bank Vietnam, for example, this year established four additional branches and transaction offices in Hanoi and Ho Chi Minh City, raising its total to 30 nationwide. The expansion has helped Shinhan Bank Vietnam retain its position as the foreign bank with the largest transaction network in Vietnam.
Huge opportunities
Nine banks - ANZ, Hong Leong, HSBC, Shinhan, Standard Chartered, CIMB, Public Bank Berhad, Woori Bank and United Overseas Bank Limited – have so far opened wholly foreign-owned banks in Vietnam.
Meanwhile, Deputy Prime minister Vuong Dinh Hue has recently affirmed that Vietnam will strictly limit, or may stop issuing news licenses for wholly foreign owned banks in the country.
It will be a big opportunity for the existing foreign-owned banks in Vietnam as the market is proving fruitful for them, who are posting better business results than their local peers (if comparing with banks having the same total assets).
According to the SBV’s latest report, by the end of the third quarter last year, the return on asset (ROA) of foreign and joint venture banks in Vietnam was 0.74 percent, higher than 0.46 percent of state-owned commercial banks and 0.5 percent of joint stock commercial banks.
By the end of last year, the total assets and charter capital of foreign and joint venture banks in the country was VND954.16 trillion and VND109.66 trillion, respectively.
Besides advantages in governance and technologies, foreign banks are also better than domestic peers in terms of capital. While domestic banks are suffering from an urgent capital increase to meet the Basel II standards as required by SBV by 2020, foreign banks are relaxed because their minimum capital adequacy ratio (CAR) reaches up to 29.11 percent, much higher than the 8 percent under Basel II norms. Foreign banks’ CAR ratio is three times higher than that of state-owned banks and 2.5 times higher than that of joint stock banks.
Analysts thus said that Vietnamese banks needed to operate on a larger scale with huge investments in technology and products through consolidations and mergers to create stronger institutions that could compete with foreign banks in the time to come.