Foreign banks are optimistic about Vietnam's economy

CA - General director of Standard Chartered Bank (SCB) Vietnam Louis Taylor said challenges for Vietnam this year include inflation, loss of confidence in value of currency and trade deficit.

However, SCB is still optimistic about Vietnam's economy and sees many growth opportunities in the country.

Sharing his viewpoint on Vietnam's economy in general and its financial and currency markets in particular this year, Taylor said SCB has listed a group of countries called the "seven-percent group", of which members are the countries expecting to obtain economic growth of seven percent or more in the next 10 years. This is an impressive growth rate and Vietnam is a member of that club.

That also means SCB has seen opportunities to develop in Vietnam, of course, along with issues such as inflation, the loss of confidence in value of currency and trade deficit.
However, SBC believes that Vietnam would be one of the three Asian economies achieving higher economic growth in 2011.

Regarding the opportunities for banking operations, Taylor said the number of bank accounts in HCM City grew by 400 percent from 2006 to 2010. The growth rate of 400 percent in bank account number, with nearly 20 millions bank accounts in 2010 compared to over five million bank accounts in 2006, has shown the huge potential for the development of the sector.

Foreign banks operating in Vietnam started receiving completely equal treatment since early this year. Talking about advantages of SCB Vietnam in developing banking and financial products, Taylor said in Vietnam, domestic banks hold more than 90 percent of market shares in several market segments. SCB would not develop its system of branches nationwide with over 200 branches as domestic banks do in order to serve customers. It is because customers are being well served by domestic banks.
Nevertheless, SCB would expand services and improve service quality to better serve its existing and future customers.

The financial market of Vietnam has just developed for over 20 years. Although there has been fast and efficient growth, the market has not yet been mature as markets of other countries. SCB Vietnam is working actively with the State Bank of Vietnam (SBV) to ensure that the policies would not only better promote the growth of foreign banks, but also contribute to the overall development of Vietnam's financial market.

Assessing the route to raise charter capital as stipulated in Decree 141/2006/NĐ-CP, which is applied for domestic banks, as well as the requirement to increase capital of foreign banks operating in Vietnam, Taylor shared that the requirement on having charter capital of three trillion dong is to ensure the banking system's development and safety, and is also enough to help Vietnam capture the opportunities for development. In addition, SBV also intended to encourage smaller banks to merge and form a larger entity. However, this aspect of the above decree has not achieved great success, because most banks want to raise capital and develop independently.

Not all banks have been able to meet the deadline of the charter capital increase requirement; therefore, there has been an extension of one year for implementing this.

According to Taylor, it is very good and important if a bank is strong and having good capital, but if capital is larger than the management capacity, it could lead to unpredictable problems in the future. In fact, the number of good lending opportunities does not grow along with the increase of charter capital. When bank is in excess of capital, their credit quality would become lower, because they must find every ways to use their capital, in order to ensure profitability at an appropriate level for shareholders and that reduces the safety and health of the banking system.

He added that therefore, state management agencies need to balance reasonable level of capital for the banking system and the capital beyond banks' capacity; but the minimum level of three trillion dong seems to have achieved this balance.