Leading financial experts have warned domestic banks that they could suffer market losses this year as Viet Nam's commitments with the World Trade Organisation (WTO) on the operation of foreign banks comes into effect.

Foreign banks, which have become stronger in recent years, will now be operating on a level playing field with domestic banks.

In addition to traditional advantages like modern technology and years of experience in retail banking services, the foreign banks continue to improve their capital potential as well as human resources.

As a result, while many domestic banks have been unable to raise chartered capital to the Government's requirement of a minimum VND3 trillion (US$141.71 million), foreign banks have already increased their capital 4 or 5 times higher than their chartered capital. Some of them have charter capital 8 times higher than it was initially registered.

Two years ago, the most important positions at foreign banks, including branch directors, office heads and office deputy heads, were held by foreigners, but now are mostly filled by Vietnamese.

This "human resources domestication" strategy of foreign banks has enabled them to keep up with domestic banks in understanding Vietnamese customers, experts have said.

Dr. Le Xuan Nghia, vice chairman of the National Financial Supervision Committee, said foreign banks were holding an advantage in lending to foreign enterprises, and, in the future, they would become retail banks via credit cards.

Under Viet Nam's trade commitments to the WTO, from January 1, foreign bank branches in Viet Nam would be treated equally to domestic commercial banks in the areas of credit limit and credit guarantee.

In addition, Viet Nam-based foreign banks will be allowed to receive deposits in Vietnamese dong fromVietnamese individuals with whom they do not have a credit relationship.

Pham Quyet Thang, general director of the Global Petroleum Joint-Stock Commercial Bank (GP Bank), said that domestic banks were in danger of having their market share drop significantly.

"Foreign banks are now paying attention even to customers who need small loans. This is quite different from before," Thang said.

He predicted that domestic banks not meeting the Government's requirement on minimum capital of VND3 trillion would likely meet difficulties in 2011.

Under this regulation, the central bank may not allow unqualified banks to expand their network or implement new services until they have sufficient charter capital.

National gold exchange?

With global and domestic gold prices fluctuating at a high level, the National Financial Supervision Committee said national gold exchanges in Ha Noi and HCM City should be created.

Regulations on operations would resemble those of the current stock markets. In particular, gold exchanges would allow investors to trade in the precious metal by using certificates.

The State Bank of Viet Nam will set up a joint-stock company to keep track of activities on the gold exchange and develop advanced infrastructure to ensure professional, smooth operations.

Through the gold exchange, investors can use gold as an official investment tool while management agencies will be able to regulate the gold market through exchange.

The Bank for Development and Investment of Viet Nam (BIDV) also stressed the need to establish gold changes. However, the model of their gold exchange was different from that of the SBV.

BIDV suggested that a gold exchange operate as a State-owned, single-member limited liability company. Individuals and enterprises could deposit gold and place orders through the gold exchange's trading system.

According to BIDV's suggestions, gold exchanges merely offer a location for trading and related services without taking part in any transactions.

Market players, mainly reputable banks and enterprises, will engage in proprietary trading or serve as brokers.

This kind of gold exchanges will operate based on strict regulations on transactions, payments, gold storage and transport, as well as quality assurance. Such issues as risk management and transparency will also be addressed thoroughly.

Besides these models of gold exchange, some foreign and domestic financial experts have also proposed setting up gold trading funds in the stock markets to bridge the gap between local and global gold prices.

Under this method, gold prices would not adversely affect the exchange rate and the need to import physical gold would fall dramatically.

The funds' aim is to ensure that their value as well as that of their certificates move in tandem with gold prices.

The result is that gold speculation can be curbed, considering that transactions of physical gold during a gold-price fever pale in comparison with the amount of gold in the economy.

According to financial experts, the planned gold exchanges aim to replace unofficial gold trading floors. However, unlike shares, which can only be traded on the bourse for profits, gold is a physical commodity which can be stockpiled.

Moreover, gold buyers can also satisfy their demand by turning to the vast array of gold shops nationwide.

They, however, said the establishment of an official gold exchange would do little to reduce the disparity between domestic and global gold prices.

Besides, the gold exchange would require transparency in many areas, including the time to process orders, investor rights, operational structure and gold shop management.

In other words, their success depends on many difficult conditions. The legal framework must be clear and truly effective, or the Government must at least exert control on gold trading. Without these, the gold exchanges would exert a limited effect.

Card market expands

Thanks to banks' efforts in developing a non-cash payment system in the country, the domestic card market has developed strongly, with about 28.5 million debit and credit cards.

The number of automatic teller machines (ATMs) has also increased sharply from 1,800 in 2005 to 11,500 in 2010, while the point of sales (POS) rose from 11,000 to 50,000.

The banks have also connected the three domestic card payment networks, thus facilitating card owners' transactions.

The current card payment system now allows card owners to carry out different payment services, such as withdrawing cash, transferring money, paying for electricity, telephone and water fees, and the internet.

Euromonitor International, the world's leading independent provider of business intelligence on industries, countries and consumers, reports that in 2010 Viet Nam saw 825.5 million card transactions, much higher than 20.2 million in 2005 and 609 million in 2009.

To have such a developed non-cash payment system, the banks have already spent about VND3 trillion to purchase ATMs, excluding expenses for technology and auxiliary equipment and maintenance services.

However, according to analysts, the effect of this non-cash payment system has not paralleled the banks' investments.

A report made in last October by Nielsen, the world's leading market-research organisation, said that just 1 per cent of 600 polled people used credit cards, and 26 per cent used ATM cards.

A director of a bank-card centre in HCM City said that only 50 per cent of the country's total 28.5 million cards were being used regularly.

At his bank, which is leading the banking system in card turnover, the used cards accounted for 80 per cent, while the popular ratios at other banks were 40 and 60 per cent. Significantly, most of the cards were used for money withdrawals but not for payments.

Euromonitor International also revealed that 30 per cent of total card transactions in Viet Nam were used for paying entertainment services, 28.5 per cent for resting services, and 17.8 per cent for travelling activities.

The Vietnamese people's habit of continuing to use cash is due to the minor impact of the current non-cash payment system.

January, 10 2011 09:36:04

By Thien Ly

Source: vietnamnews.vnagency.com.vn

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