The trend of foreign financial institutions withdrawing capital from their Vietnamese joint ventures has raised questions about the country’s state of financial stability, but experts claim the situation is no cause for alarm.
Since early to mid 2017, well known international institutions such as France’s BNP Paribas, Hong Kong’s HSBC and Australia’s Commonwealth Bank have attracted media attention as they took turns withdrawing money from their Vietnamese partners.
The trend continued with ANZ’s sale of their retail sector in Việt Nam to Shinhan Bank’s Vietnamese branch in December 2017. US Standard Chartered Bank sold its entire 8.75 per cent stake in a joint venture with Asia Commercial Bank (ACB) in January 2018.
The main reason for a number of international banks’ narrowed operations in Việt Nam, according to some experts, is an inevitable change in their business strategy. These banks consider maintaining previous investments less profitable than withdrawing capital from their Vietnamese partners and investing elsewhere.
Banking expert Nguyễn Trí Hiếu drew a contrast between Western banks and Asian banks. He explained that Asian investors are quite knowledgeable about Việt Nam’s market and business culture with their own native clients working here, much more so than their Western counterparts.
Hiếu told the Vietnam News Agency (VNA) that in recent years, many Asian investors from Japan, South Korea, Malaysia and Singapore have entered Việt Nam, while investors from European countries are becoming more cautious, with some banks withdrawing capital from the country.
Talking to the VNA, financial expert Bùi Quang Tín said that a divergence in business strategies is unavoidable when domestic and foreign capital investors work together for a significant length of time.
Tín shared his positive view that in the near future, foreign investors will be able to invest more in local banks, namely Vietcombank, VietinBank or BIDV, once these institutions opt for a more open cooperation policy, especially with Agribank’s imminent equitisation.
He further argued that private commercial banks should expect profit in the following years to rise, while the bad debt ratio is expected to decrease thanks to the National Assembly’s Decree 42 on handling bad credit institutions.
In the same vein, the National Financial Supervisory Commission quoted financial and banking expert Can Van Luc that the national banking system is better than it was a few years ago.
Luc opposed the suggestion that a high level of non-performing loans, lack of risk management and corporate governance have reduced Vietnamese banks’ attractiveness.
“I do not think that the country’s business market is deteriorating, nor is it the reason behind decreasing banks’ profit, as some have commented,” said Lực.
On the contrary, positive factors such as sharply increasing banking stocks, average annual growth rate of 15 to 16 per cent in the financial sector and a more open legal corridor mean Việt Nam should be seen as a potential investment destination, he added.
Here to stay
In order to attract and retain investment from foreign banks, the domestic banking system would need to be more flexible, professional and comprehensively re-structured, said Hiếu.
“The national banking system has begun restructuring in recent years, but still not all the way. Only when domestic banks are able to deal with bad debts, replenish their own capital to become healthier, more stable and more attractive, can foreign investors start pouring money in,” he explained.
And yet, ANZ Vietnam’s representative told the VNA that they will not be out of Việt Nam completely, acknowledging a long and successful operation history in the country.
According to ANZ, the transfer of their retail banking business to Shinhan Bank is part of a strategy to simplify the bank and increase its capital efficiency.
This would hopefully allow ANZ to focus its resources on Asia’s largest business segment – corporate clients and financial institutions – as ANZ is one of the four leading banks in trade support and capital in the region.
ANZ’s representative further said that the bank was committed to continuing its presence in Việt Nam, to support regional and national financial institutions and businesses.
The bank was optimistic about business opportunities in Việt Nam, thanks to the stable government, favourable population model, trade integration and foreign direct investment, as well as the rise of a new middle class.