Opportunities to approach foreign markets
To prepare for international economic integration via free trade agreements (FTAs) and the effectiveness of the Trans-Pacific Partnership Agreement (TPP), the domestic banking sector has been active in participating in related negotiations, signing legal documents and taking practical actions to promote its strength in an expansive playground.
According to Director of the University of Economics and Business under the Vietnam National University, Dr. Nguyen Hong Son, integration will open up opportunities for Vietnamese commercial banks to approach foreign markets along with the transfer of modern banking management technology, the promotion of transparency and in the form of new banking business models. Son noted that thanks to the diversity of financial and banking products and services after the signing of the TPP, Vietnamese consumers will have more chances to choose banking products and services.
Other economic experts say that international investment inflows into Vietnam will grow stronger in the coming time, creating favourable prospects for Vietnamese commercial banks to enhance liquidity and business opportunities. In addition, domestic commercial banks will have easier access to international trust funds with lower costs due to the improvements of Vietnam's position after joining the TPP.
"The banking sector will have the opportunity to experience the miracle stage of development as seen in 2006 when Vietnam joined the World Trade Organisation (WTO) but the intensity may be lower", said Dr.Dao Le Kieu Oanh from the Banking University of Ho Chi Minh City. The banking sector will have more chances to provide loans and services for import-export enterprises as Vietnam trade is forecasted to grow strongly. The sector will also be expanded further in accordance with joint commitments, she added.
Econimist, Dr. Nguyen Tri Hieu said that Vietnamese commercial banks will be likely to raise ownership ratios for foreign strategic partners which will help domestic banks expand co-operation and enhance their management and financial capacity.
Facing challenges
Dr.Nguyen Hong Son said the TPP will be a turning point that requires Vietnam and participating countries to allow foreign financial corporations to sell their services to other member countries without the establishment of a branch in the respective country. This means that it is not necessary for foreign banks to set up their subsidiaries in TPP member countries as stipulated by the WTO. When the TPP is signed, Vietnam will see more diversified products and services provided by foreign banks without their physical presence witnessed in Vietnam.
In addition to relaxed rules on foreign investors’ participation in the domestic market, Vietnam’s commercial banks also have to overcome a number of technical standards to take advantage of preferential commitments during international integration and expansion into regional and global markets.
Dr. Oanh also noted that the phase-out of market access requirements is also a challenge for developing countries in general and Vietnam in particular. The challenge also comes from limits inside the banking system such as poor access to banking services despite some improvement, inadequacy in risk management at domestic banks and a rising rate of non-performing loans.
At the same time, a number of banks are plagued with poor management, violations of corporate management and risk management principles. The quality of the banking system’s assets is deteriorating with several banks possessing low equity capital, even lower than the 9% level set by the State Bank of Vietnam (SBV). The Vietnamese banking system’s capital adequacy ratio is estimated at 8.5%, compared with 11% in China, 15.7% in Thailand and 15.2% in the Philippines.
From 2016 when new-generation free trade agreements take effect, there will be massive changes to Vietnam’s trade and financial structure in relation to its trade partners. Therefore, many economists suggest that the SBV should take into account the impact of major countries’ monetary policies so that they could pursue an appropriate policy. The SBV’s recent successes shows that monetary policies can still be independent even with a small and open country like Vietnam.
However, it is still necessary to retain certain control over exchange rates and capital flows to mitigate negative external impacts on the domestic market prior to full liberalisation. Moreover, the key to ensuring this independence is the ability of foreign reserves to withstand market volatility. Experts suggest that the SBV continue implementing measures to minimise speculation, hoarding of foreign currencies and reduce the dollarisation of the economy.
Regarding the operation of commercial banks, integration also requires them to make greater efforts to be well prepared in terms of financial resources, business administration capacity, integration and competition strategies in the new environment. With their current financial and administration capabilities, Vietnamese banks are only able to support Vietnamese enterprises operating in Laos, Cambodia and Myanmar.
Therefore in order to achieve the goal of forming banks meeting regional and international standards, commercial banks should invest more in research and development of export-oriented financial services so as to expand their operations abroad.
