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Foreign banks won’t dominate local market   2008-09-12 - SGT

The European Chamber of Commerce in Vietnam (EuroCham) has hailed the licensing of Standard Chartered Bank and HSBC to open their subsidiaries in Vietnam. In an interview with the Daily on Wednesday, EuroCham chairman Alain Cany described the event as important and discussed issues in relation to the country's economy. Excerpts follow:

Was the licensing of the two European banks to set up foreign-owned banks in Vietnam slower than expected?

EuroCham chairman Alain Cany.

EuroCham had followed the applications of Standard Chartered Bank and HSBC for establishing their own subsidiaries in Vietnam for about a year. Today, we're very pleased with the licensing as it's strong evidence for Vietnam's fulfillment of the World Trade Organization (WTO) commitments. Yes, it is slower than expected and we had recommended that the licensing process be shortened. The Government should not work under the pressure of local banks and companies as Vietnam decided to join the WTO and now welcomes fair competition.

At the end of the day, local consumers will benefit from better and cheaper products provided by foreign banks. Fair competition forces local banks to improve their products and services. I do not see in any single country where foreign banks are dominating the local banking market.

In developed countries like France, the United Kingdom and Japan, local banks are taking the dominant positions. And in developing countries like China where HSBC has its local incorporation, the local banks are dominating the markets.

In Vietnam, I think foreign banks won't dominate the local market. They will provide high quality services and new technology so they help raise the standards of the local banking market. Therefore, Vietnamese companies will be able to benefit from the services of good foreign banks.

But it is concerned that local banks will be driven to disadvantage as the foreign banks are stronger in terms of experience and financial capabilities. What's your comment?

Vietnamese banks should not be scared though some of them will probably suffer a lot because they are too small so they are not be able to survive through competition. I think that there are many too small local banks and there's no doubt that some banks will be merged into bigger banks and the best banks of the country like Vietcombank.

With the participation of foreign partners, I think Vietcombank will remain among the top players. Maybe after 10 years, HSBC will take the fourth to seventh position in this market but it will never at the top because it doesn't have advantage and deep knowledge of the local market.

As usual, local customers prefer local banks to foreign banks if the local banks are good. I think the Government should pay attention to the banks unable to compete... and maybe some big banks will take over small banks. This will happen in the private sector. People want to open banks and they will be eliminated by the market if they are not successful.

Experts say the Government's measures to curb inflation and financial problems have produced results to a certain extent. How do you assess the efficiency of the measures?

The measures are good but are not enough to tackle everything. I think inflation will remain the primary issue of Vietnam next year even though there is now less pressure on commodity prices.

However inflation is still high and Vietnam faces the risk of losing its competitiveness. The Government should be always careful in controlling prices. I know the prices of some products are increasing due to the lack of efficient supply chains and good competition.

So, I hope the opening of the retail business to foreign companies, scheduled from January 2009, will not be delayed as they help improve the local supply chains and provide food and other items at more competitive prices.

You may notice that Metro and Big Care exerting their efforts to lower the prices of their products. If there are more competitors, all supermarkets including here will be under the pressure of lowering prices. Vietnam is now on the right track, but it is too early for the State Bank of Vietnam to relax the measures as there's pressure put by local banks to loose the measures.

I think one of the problems with the measures is that these measures impact the growth though the Government wants to continue high growth. I think the Government should make sure loans for exporters as l have been told that they cannot source raw materials because of the lack of loans.

For this reason, I'm concerned of the export growth in the second half of this year though it went very well in the first half. It is important to ensure exporters to have cheap loans through banks to spur shipments to support the country's growth.

The Government has urged strong measures to achieve GDP growth of 7% this year. What do you think?

Controlling inflation is better than high gross domestic product (GDP) growth. Priority should be to reduce inflation, but Vietnam needs to have GDP growth. Frankly speaking, 5-6% is not a problem and it is better to keep GDP growth at this rate and then to achieve 10%. The Government should make sure that it reduces inflation without killing business. Be careful with the banks and the exporters because exports generate GDP growth and foreign currency.

This year Vietnam has attracted mega projects from North America, Asia and the Middle East except Europe. Are European companies too cautious?

I agree that European companies are too cautious in investing in Vietnam, and that's why EuroCham is taking actions to promote Vietnam. Personally, I'm going to Europe next month to talk about Vietnam to help attract more investors from the continent. I believe European companies are a little bit slow in taking advantage of business opportunities in Vietnam.

However, I understand that they are scared of high inflation in Vietnam. So I will have to tell them Vietnam is very good. I think Vietnamese Government agencies and companies will have to make greater efforts to market Vietnam, and they can do better.

Vietnam is now very successful in getting foreign direct investment (FDI) so the Government should be selective in FDI and accepts the projects that are good quality and promote technology transfers and add-value products, as these are what Vietnam needs.

Vietnam has a lot of workers who are good, hard working, smart and better than laborers in many other countries. However, the country must improve the supply chains so that foreign companies can find materials for producing shoes and other items in this country.

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