10:42 | 18/11/2015 Companies
(VEN) - Vietnam Economic News’ Duong Nga interviewed Pham Manh Thang, Deputy Director General of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) following completion of negotiations on the Trans-Pacific Partnership (TPP).
Vietcombank Deputy Director General Pham Manh Thang
How will TPP affect the banking sector?
Through the TPP, Vietnam would integrate more deeply into the global economy thanks to liberalization in a range of socioeconomic fields and high-level market opening commitments. International integration will bring good opportunities for Vietnamese exporters and consumers and the other countries that joined TPP negotiations. Vietnam has the lowest development level compared with other TPP negotiating countries, so it is expected to benefit the most from the agreement. The TPP will create favorable conditions for the banking sector to expand the domestic market and facilitate its access to foreign markets. Firstly, foreign investment in Vietnam will strongly increase, improving liquidity and increasing business opportunities for the banking system, and allowing it to access global sources of authorized capital at a lower cost. Secondly, the TPP will create opportunities for Vietnamese commercial banks to assist export businesses in terms of capital and service. Thirdly, Vietnam will have opportunities to attract foreign investment into the banking sector that needs to meet high requirements in terms of capital, technology, and management capability. The increasing presence of foreign investors in Vietnam will create favorable conditions for domestic banks to expand cooperation, and improve management capability and financial capacity.
However, the TPP will also require the banking sector to cope with big challenges. Firstly, due to the growing presence of foreign banks in Vietnam, especially financial institutions from the US, Japan, and Australia, competitive pressures will increase, requiring domestic banks to improve their financial capacity and management capability. Secondly, domestic banks will gradually lose their position in important market segments due to the retail strategies of foreign banks which have advantages in terms of professionalism when it comes to services, technology, and customer access skills. Thirdly, domestic banks can receive more capital flows from foreign investors but will also face the risk of being governed by foreign investors.
Nevertheless, the TPP’s short-term impact on the finance and banking sector is expected to be not very heavy because this sector will be just indirectly affected through providing services and loans for export businesses. Moreover, it will take a certain period of time for the TPP to officially take effect in all member countries.
What has Vietcombank done to prepare to cope with the impact of the TPP?
Vietcombank is an experienced commercial bank in providing loans and services catering for the import and export of goods and services. The chairman of the board at Vietcombank is also Vice President of the Asian Bankers Association. Vietcombank is very well aware of the importance of international integration as well as the participation in the TPP in particular. Therefore, Vietcombank has taken the initiative in grasping information about the TPP and preparing for coping with new competition in terms of internal strength and external relations.
In terms of external relations, Vietcombank has actively expanded cooperation and business relations with foreign banks all over the world and achieved successful results in building and strengthening bilateral and multilateral relations, opening many business cooperation opportunities.
In terms of internal strength, Vietcombank has researched and developed a wide range of products to meet global market demand and taken the initiative in joining global financial markets. The bank has expanded its customer base and applied flexible customer care and pricing policies. Since 2014, Vietcombank has focused on enhancing its competitiveness. We are currently developing a pilot project to improve Vietcombank’s risk management capability in accordance with the final version of the New Basel Capital Accord, known as Basel II, with the aim to build strategic advantages and create basic changes in the management of banking activities.
When the TPP takes effect, the level of competition in the banking sector will increase. Do you think this will create new difficulties but also a motive for Vietcombank’s improvement?
The TPP will help Vietnam integrate more deeply into global financial markets, attract more foreign investment, and access technologies and experiences of other countries in the field of financial service development. However, due to their existing limitations, the domestic banking sector and financial market will face challenges when competition increases. Firstly, domestic banks’ profits come mostly from credit, and their incomes from services remain low compared with some other countries in the region and the world. Meanwhile, they will have to compete directly with foreign banks in these fields after the TPP takes effect. Secondly, domestic banks are still weak in risk management and lack risk assessment and preventive measures. Thirdly, the management capabilities of some banks remain weak, hindering their competitiveness in the global market.
Obviously, the TPP requires domestic commercial banks to take the initiative in improving their operations to enhance their competitiveness and make the most of opportunities from economic globalization.
Will the TPP have any impact on Vietcombank’s goal to become a leading bank?
Becoming a leading bank is not only a specific goal for Vietcombank but also a task assigned by the State Bank of Vietnam. Vietcombank is hoped to become a large, multifunctional financial and banking institution of regional and global reputation, and a pioneer in applying modern banking standards.
Pursuing this goal, in recent years, Vietcombank has taken the initiative in restructuring its operations to improve its financial capacity and competitiveness. Vietnam’s participation in the TPP will bring new challenges but also promise new opportunities and create a motive force for Vietcombank to accelerate the implementation of its goal.