Banks seek opportunities in AEC

Domestic banks need to overcome challenges to maintain their position in the international arena

Advantages

The ASEAN Economic Community (AEC) has encouraged larger trade and investment activities in the region, creating favorable conditions for promoting growth of the capital markets, especially in the banking sector.

Dr. Phan Hong Mai from the National Economics University’s Institute of Banking and Finance said that due to economic development based on the banking sector, demand for financial services by Vietnamese businesses would increase. Vietnamese banks have advantages to supply credit and other financial services for domestic businesses thanks to network throughout the country. In addition, the AEC has helped Vietnamese banks expand their branches and transaction offices in regional countries.

The Saigon-Hanoi Commercial Joint Stock Bank (SHB), the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) and the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) have opened branches and transaction offices as well as received licenses to establish subsidiary banks in regional countries such as Laos, Cambodia and Myanmar since the beginning of this year.

Challenges

According to economists, to secure a steady standing in the regional and global playing-field, domestic banks must overcome three basic challenges. Maintaining market share is the first difficulty. The country currently has five foreign-invested banks, four joint-venture banks, 49 branches and 51 representative offices from Thailand, Singapore, Malaysia and Cambodia. Thanks to good administration and large capital, their profits have remained high despite low outstanding credit.

The second challenge is to increase profits. Foreign banks will be strong competitors thanks to high capital adequacy ratio. Administration, capital and products have remained limited although domestic banks have increased their presence in regional markets, posing difficulties in raising profits.

The last challenge is to maintain operations in dependence. To rapidly expand market share, foreign banks are likely to buy shares in domestic banks. Therefore, risks in terms of narrowing operations, losing control and being implemented mergers and acquisitions deals will be possible.

To maintain the position in the context of international economic integration, domestic banks need to improve service quality and renew administration. In addition, ensuring transparency in trade activities, increasing the capital adequacy ratio and reducing bad debts based on international standards are necessary.

Duy Minh