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Foreign banks raise the bar for local finance firms   2008-09-04 - Viet Nam News

As the Vietnamese economy globalises, the banking sector will undergo massive changes as it attempts to align with world standards and minimise negative effects of world economic shifts. Viet Nam News reporter spoke with Ashok Sud, CEO of Standard Chartered Bank Viet Nam, who is also chairman of the Banking Working Group and vice chairman of the European Chamber of Commerce (Eurocharm), about recent developments with Vietnam's financial and banking market.

What is the role of the Banking Working Group?

Currently, BWG is also working with SBV to bring Vietnam’s banking regulations more in line with international standards, including forex transactions and treasury operations.

The Banking Working Group (BWG), which represents international banks and consumer finance companies in Vietnam, was created under the aegis of the Viet Nam Business Forum to open a continuous dialogue with the State Bank of Viet Nam (SBV) and the Government.

The key objectives of the group are, first, to highlight issues adversely affecting the banking industry with suggestions to make the functioning of the financial system more efficient.

Secondly, to ensure a level playing field amongst all participants in the financial sector and eliminate grey areas in interpretation of regulations. Last but not least, the group aims to be a forum that assists in ushering best global practices to the financial sector in Vietnam.

This dialogue and partnership with SBV has proved very productive and helped in sorting out a number of issues across the table. Currently, BWG is also working with SBV to bring Vietnam’s banking regulations more in line with international standards, including forex transactions and treasury operations.

As the Chairman of the Banking Working Group which represents the views of over 30 international financial companies in Vietnam, how do you think the current global financial outlook will impact Vietnam?

The global financial outlook will definitely have some impact on Vietnam. Though many asset markets may have stabilised recently and are certainly not as volatile as they were six months ago, we believe that the global financial crisis is far from over – in fact we believe that this may be the end of the beginning and not, unfortunately, the beginning of the end. The turmoil on the international market will therefore continue to affect us in Vietnam over the next year or more.

In the next phase in this global turmoil, we see negative credit and wealth effects driving banks and households to de-leverage and substantially reduce borrowing further. This next phase will therefore start affecting individuals as well as institutions.

How do you see the recent developments on the local financial and banking market? What are BWG’s suggestions to the Government?

In Vietnam, there are currently two major issues that have occurred simultaneously and need to be tackled both quickly and effectively: inflation control and trade deficit containment within a reasonable level.

The current thrust of the monetary policy has been to: firstly, raise interest rates to discourage borrowings and encourage savings; secondly, reduce the liquidity in the system; and thirdly, move towards de-dollarisation of the economy by restricting only certain categories to be able to borrow in dollars from the banking system.

Whilst monetary policy measures undoubtedly need to be used – and indeed are being used by many Asian countries currently – the Banking Working Group urges the Government to also use strong fiscal measures along with the monetary policy as experience has shown that the combination of these two are more effective.

Additionally, to tackle the trade deficit, SBV must ensure that exporters not only get adequate funding, but do so at a reasonable price.

The total market share of all foreign banks in aggregate in Vietnam is still less than 10 per cent of the banking market. Do you see this changing especially in view of a few foreign banks locally incorporating in the future?

Experience from many developing economies who have been through this phase clearly shows that the market share of international banks will remain small.

However, the key role that such banks would play in an economy like Vietnam’s is to introduce high quality products and services and to constantly set higher benchmarks for this.

This will automatically raise the bar of service quality and delivery for all banks in Vietnam, which ultimately is good for the economy and the consumer.

I estimate that in five or six years the total branch network of the three foreign banks that are likely to locally incorporate will be in the vicinity of 20-30 branches each – this pales in significance compared to the 1,000 plus branches that the local banks and the joint stock banks currently have.

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