There are currently nine 100 percent-foreign owned banks licensed in Vietnam, doubling the number recorded two years ago. It shows that Vietnam is having many attractive points.
The participation of foreign financial institutions in Vietnam in the past two years has seen a lot of changes as many foreign banks have withdrawn or narrowed operation in Vietnam. Typically, HSBC Vietnam divested from Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Australia’s Commonwealth Bank sold its Hochiminh city branch to Vietnam International Commercial Joint Stock Bank (VIB), BNP Paribas sold its entire 18.7 percent shares of Orient Commercial Joint Stock Bank (OCB) after a decade of cooperation, or Standard Chartered Bank sold entire its 8.75 percent shareholdings of Asia Commercial Joint Stock Bank (ACB), etc.
While foreign banks have withdrawn capital from local banks, the number of 100 percent foreign owned banks established in the country has increased in the recent time. In two years of 2016-2017, four more banks were licensed to operate in Vietnam, increasing the total number to nine banks.
These nine banks include HSBC (Hongkong-Shanghai), ANZ (Australia), Standard Chartered (United Kingdom), Shinhan (South Korea), Hong Leong (Malaysia), Public Bank Berhad (Malaysia), Woori (South Korea), CIMB (Malaysia), and UOB (Singapore).
By the end of 2017, the total assets of joint venture banks and foreign banks in Vietnam were 954.165 trillion dong. Their equity was 141.838 trillion dong and charter capital was 109.656 trillion dong. While domestic banks are struggling to quickly raise charter capital to ensure the minimum Capital Adequacy Ratio (CAR) under the Basel II Treaty, foreign banks seem to be relatively relaxed. Their CAR is 29.11 percent, three times higher than the group of state-owned banks and 2.5 times higher than the group of joint stock private banks.
According to statistics by the end of the third quarter of 2017 (the latest data provided by the State Bank of Vietnam (SBV), the Return on Assets (ROA) of joint venture banks and foreign banks reached 0.74 percent, higher than state-owned banks’ (0.46 percent) and joint stock private banks’ (0.5 percent). Meanwhile, the Return on Equity (ROE) of joint venture banks and foreign banks was 4.57 percent, lower than state-owned banks’ (9.06 percent) and joint stock private banks’ (7.07 percent).
Each joint venture bank and foreign bank do not have much specific information about business results like domestic banks. HSBC, ANZ and Shinhan Bank are the only banks that report its annual financial statements, but mainly summary report without notes.
HSBC has the longest presence in Vietnam as its first office was opened in 1870 in Saigon. The bank was allowed to established the 100 percent foreign owned subsidiary bank in 2008. By the end of 2017, the total assets of HSBC Vietnam reached over 87 trillion dong, up by 2.4 times compared to its establishment 10 years ago. The bank’s charter capital was raised from three trillion dong to 7.528 trillion dong.
According to HSBC Vietnam, its pre-tax profit in 2017 was 2.232 trillion dong, up by 24 percent compared to 2016. In particular, similar to the Vietnamese banks which generate main revenue from lending activities, the interest income of HSBC contributes 65 percent of HSBC Vietnam’s total operating income. The bank’s non-interest income often accounts for 30-35 percent, slightly higher than the average level of Vietnamese banks, but still much lower than other countries (usually above 60 percent).
ANZ is also recording trillion-dong profit in Vietnam. In 2017, the bank posted a profit of 1.335 trillion dong, significantly up by 2.3 times compared to 2016. However, the surge in income did not come from the bank’s core business but from the profit of other activities (825 billion dong, 59 times higher than the same period of previous year). This is mostly due to the bank’s earnings from the completion of the transfer of retail banking segment to Shinhan Bank in late 2017.
Except the interest income which continued to grow by 10 percent, other business activities of ANZ Vietnam declined significantly compared to the previous year. For example, the bank’s service activities only recorded 299 billion dong of profit, down by 8 percent; foreign exchange business recorded profit of 198 billion dong, down by 21 percent; and securities trading and securities investment recorded profit of 60 billion dong, down by 61 percent. According to ANZ’s financial report, by the end of 2017, ANZ has cleared its overdue debts and irrecoverable debts.
In the wave of penetration and investment acceleration from South Korean giants, Shinhan Bank expressed its ambition by acquiring the retail segment of ANZ Vietnam, aiming to reach the top 3 in credit card business in the next three years. In 2017, Shinhan Bank Vietnam attained 1.617 trillion dong of pre-tax profit, up by 24.6 percent compared to 2016. Specifically, the bank’s net interest income grew by 23.5 percent, reaching 2.112 trillion dong; and profit from service activities increased by 17.7 percent, reaching 213 billion dong. After buying the retail segment of ANZ, the total assets of Shinhan Bank Vietnam reached over 75 trillion dong, up by 37.6 percent compared to 2016.
It can be seen that compared to many Vietnamese banks, the profit of the above three 100 percent foreign-owned banks remains fairly modest. However, if comparing to Vietnamese banks having similar total assets of around 100 trillion dong (such as Bac A Commercial Joint Stock Bank and Orient Commercial Joint Stock Bank), HSBC, ANZ and Shinhan Bank’s profit is better.
In fact, each foreign bank joining Vietnam’s market has different direction. For example, Shinhan Bank is showing ambition in credit card market, and CIMB said that it will focus on the launch of the first digital bank in Vietnam in January 2018. Meanwhile, UOB targets fintech sector in Vietnam via FinLab programme, a joint venture between UOB and SGInnovate.
Vietnam is having up to 34 commercial banks, completely overwhelming foreign banks in many aspects of network and lending market share, etc. Nevertheless, the competitive advantage of foreign banks is their reputation, experience as well as their scale and financial health. The most obvious advantages are the high CAR, high service quality and better security level. This will also create a lot of pressure on local banks as the market becomes more difficult, requiring more trust, service quality and security in transactions.
