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Investment of Foreign Banks in Vietnamese Commercial Banks


Vietnam has fully opened its banking sector, many foreign banks have participated in the Vietnamese financial market through capital contributions to domestic banks to penetrate deeper and more firmly into the Vietnamese market.

Table 2.17- Investment of foreign banks in Vietnamese commercial banks


TT

Joint Stock Commercial Bank

Vietnam

Bank

Foreign

Date of publication

Proportion

own

Total assets

(Thousand billion)

1

Techcombank

HSBC

07/08/2008

20%

51.8

2

SeABank

Societe Generale SA

August 18, 2008

15%

19.6



(France)




3

VP Bank

OCBC (Singapore)

04/08/2008

15%

20.4

4

ACB

Standard Chartered Bank

July 24, 2008

15%

103.0

5

AnBinh Bank

Maybank (Malaysia)

May 28, 2008

15%

15.6

6

Eximbank

Sumitomo Mitsui

July 31, 2007

15%

44.4



(Japan)




7

Habubank

Deutsche Bank

01/02/2007

10%

16.5

8

South

UOB (Singapore)

January 25, 2007

10%

17.6

9

Orient

BNP Paris (France)

November 17, 2006

10%

10.7

10

Sacombank

ANZ Bank

March 24, 2005

10%

75.0

11

VCB

Mizuho

September 30, 2011

15%

358

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Investment of Foreign Banks in Vietnamese Commercial Banks

Source: NH Magazine September 2011

2.2. General assessment of the current state of monetary market development in Vietnam according to market structure criteria in the period after joining the WTO

Through research on the current situation, it is shown that Vietnam's information technology market is still developing at a low level compared to the region and the world. Information technology is segmented, fragmented, and divided into groups ( state-owned commercial banks, commercial banks, foreign bank branches, joint-stock commercial banks , etc.). Although the current policy mechanism, information technology infrastructure, etc. have created a basic foundation for information technology activities. However, Vietnam's information technology market is still underdeveloped, transactions on information technology, especially Repo transactions, are not really active; monitoring and processing information on information technology still have many shortcomings, significantly affecting the implementation of information technology supervision and monetary policy management functions of the State Bank. In addition, the activities of Vietnam's information technology market are not highly professional. Credit institutions participating in the market mainly aim to ensure liquidity, not paying much attention to the need for profitable business in the market, so they have not ensured their role as market makers, specifically:


2.2.1. About goods (tools) participating in the market.

2.2.1.1. Achievements.

The issuance of treasury bills and bonds through bidding through the State Bank in recent years has opened a new issuance channel, mobilizing thousands of billions of VND with low interest rates and mobilization costs, promptly meeting the spending needs of the State Budget and for development projects at the central and local levels.

On the other hand, the issuance of treasury bills through bidding through the State Bank has become the main source of goods for open market operations - an important tool for the State Bank to implement monetary policy in market economy conditions.

Furthermore, by investing in treasury bills issued through the State Bank, members holding treasury bills can participate in open market operations, mortgage (loan operations secured by mortgage of short-term valuable papers) or discounting at the State Bank. Commercial banks participating in the treasury bill auction not only have more tools to perform credit operations with the State Bank but also have more channels to invest temporarily idle capital safely, with high liquidity and as a tool to ensure solid reliability.

In addition, the Ministry of Finance has gradually improved the flexibility of the types of treasury bills and the guiding interest rates, creating conditions for the treasury bill and bond bidding market to operate actively and develop more and more.

2.2.1.2. Limitations

- First: Financial instruments are not diverse in types and terms.

In general, the "goods" on Vietnam's financial market are relatively diverse, however, the volume of each type of instrument issued is not large and has not been standardized. Among the above types of GTCG, Treasury bills are still the main financial instrument on the financial market. Goods on the market are still limited in terms of types, terms and quantity. According to the Law on the State Bank, only short-term valuable papers can be traded on the open market such as SBV bills, Treasury bills and other short-term valuable papers. Meanwhile, according to the experience of some countries, in addition to short-term valuable papers, long-term valuable papers are also used in term buying and selling transactions, that is, according to short terms, with the purpose of regulating


Timely availability of capital of credit institutions. Long-term valuable papers are mainly government bonds, corporate bonds, and project bonds.

+ Government bonds are not diversified in terms of terms:

Treasury bills are issued with a term of 364 days mainly. This shows the unprofessionalism of the TTTT because the volume and term of GTCG depend mainly on the capital needs of the state budget without taking into account the benefits it brings to the market. Treasury bills are a typical example. The Ministry of Finance only bases on the capital needs to offset the budget deficit to issue treasury bills with a term of mainly 364 days, so there is no basis to build a standard yield curve for the market ( in Singapore, although the budget has a surplus, the Government always issues a large volume of treasury bills with diverse terms to serve the activities of the TTTT ).

+ Deposit certificates and commercial bills have not yet become trading tools on the Internet because there is currently no reputable enterprise credit rating organization in Vietnam; On the other hand, the use of enterprise credit rating services is not yet popular, so credit institutions find it difficult to determine the quality and risk level of bills issued by enterprises; most market members are not fully aware of

Regarding bills of exchange, the credit institution only has a relationship with the seller, while the risk appears on the buyer's side...

- Second: the buying and selling of short-term valuable papers is not yet developed. Short-term valuable papers, which are instruments of the new money market, only include treasury bills issued in the primary market through the State Bank, and the SBV's treasury bills are issued in very limited quantities. Commercial papers are still in the preparation stage on the official regulations that have not yet appeared. There are not many certificates of deposit. The market is not yet active, the number of members participating in the bidding for treasury bills is still small, each session has only 1 to 4 members, mainly state-owned commercial banks winning the bid. The term is not diverse, mainly 364 days.




11 Currently, organizations that conduct corporate credit ratings in Vietnam include the Credit Information Center (CIC) under the State Bank of Vietnam, the credit rating company of Vietnamnet, and the credit rating company C&A. However, the scale of operations of these organizations is still limited, and the services provided by these organizations are not yet widely used in the market.


-Third, GTCG issued not according to international standards: GTCG traded on the market has not been standardized. When determining the purchase and sale prices of GTCG, the parties involved spend a lot of time agreeing on the calculation method and have to calculate it themselves using Excel. Bloomberg's bond trading software program does not support this calculation because most types of bonds on the Vietnamese market are not issued according to international standards.

- Fourth, Difficulties in storing and transferring GTCG in the form of certificates: Currently, a large value of GTCG in the form of registered certificates has not yet been registered at the Securities Depository Center, causing difficulties in storing and transferring between parties participating in the transaction.

- Fifth: Products on the market are still poor, credit institutions mainly still conduct lending and deposit transactions. Instruments on the secondary market have not appeared yet such as: commercial papers, other derivative instruments, loan terms include both short-term and medium- and long-term, leading to short-term transactions not being considered important, which is the reason why the secondary market has not developed. Foreign bank branches often do not have abundant Vietnamese Dong to participate in buying treasury bills on the primary market, so there are no goods to participate in the open market.

Meanwhile, if we want to meet the economic relations between legal entities doing business in currency, we must admit that the number of open market transactions is still small, not providing timely capital for credit institutions and still not creating continuity in open market operations. Therefore, increasing the number of transactions to suit the capital needs of credit institutions in each period is an issue that needs attention.

- Sixth: In the interbank foreign exchange market, the volume of foreign exchange transactions through the market is still small due to the market's lack of flexibility, commercial banks operate in a state of self-sufficiency, leading to a situation where customers with foreign currency do not want to sell to banks, banks always seek to reserve foreign currency to be ready to serve their customers and avoid exchange rate risks because the exchange rate always tends to increase.

2.2.2. About the subjects participating in supply and demand in the market

2.2.2.1. Achievements

- Firstly : On Vietnam's stock market, the Government participates as the issuer of government bills and bonds. The Vietnamese Government has made many efforts.


efforts in improving the health of the banking sector through the implementation of the Project to consolidate and rectify joint-stock commercial banks (1998) and the Project to restructure state-owned commercial banks (2001) to improve financial health, strengthen market discipline in banking activities and improve the competitiveness of the banking system. The banking reform program also received important financial and technical support from the international community, especially the WB, ADB, IMF and governments of countries.

-Second: The State Bank innovates its organizational structure and operating methods . The State Bank participates in the interbank market as the issuer of State Bank bills, the organization of commercial banks, and the refinancing of credit institutions. In addition, the State Bank also has an important function of monitoring and supervising the activities of the interbank market to serve the management of the national monetary policy. The State Bank issues legal documents related to the activities of the interbank market and uses monetary policy tools to intervene to regulate the interbank market according to the objectives of the monetary policy.

The Vietnamese currency market has been gradually affirmed through its value stability, diversity of means of payment in lieu of cash, and constant improvement of operating technologies as well as modern business technologies aimed at the diverse utility needs of all classes of people.

- Third: Credit institutions are in the process of rectification, consolidation and restructuring . As key members of the market, credit institutions participate in the government bond markets organized by the State Bank, the State Treasury and the Hanoi Stock Exchange, participate in the interbank lending and deposit market, the interbank foreign exchange market, the commercial bank, the bill bidding market, perform currency swap operations and other operations. With a wide network of operations, modern technology and specialized fields of operation, credit institutions are gradually becoming the creators of information technology in Vietnam. Credit institutions are also at the forefront of bringing advanced products and services to Vietnam such as derivative services, smart cards, etc.

+ Policy lending is separated from commercial lending and the state management agency's intervention in the business activities of credit institutions is stopped to ensure that credit institutions, including state-owned commercial banks, conduct business according to market principles and maximize profits. The right to business autonomy, self-responsibility for finance and risks is increasingly clearly institutionalized and implemented relatively effectively, especially in the joint stock banking sector and foreign bank branches. State-owned commercial banks have been periodically internationally audited and other commercial banks have been


be independently audited annually and must disclose information about its financial situation and operations to the public.

+ Commercial banks promote technological modernization and improve management and operation capacity on the basis of increasing the application of international practices on corporate governance and gradually establishing risk management institutions. Basic banking operations are constantly standardized and integrated based on modern information technology platforms to support the centralized management and operation process of commercial banks. Currently, the banking industry is entering the second phase of banking and payment system modernization. Therefore, Vietnamese commercial banks are increasingly operating professionally and have more prestige internationally.

+ The organizational structure of commercial banks has been modernized. The scale of operations and distribution channel network have continued to be expanded more reasonably. The business efficiency of credit institutions has been significantly improved, most credit institutions are profitable.

- Fourth : Non -bank financial institutions, insurance companies, investment funds: The characteristic of insurance companies is that they have idle long-term capital, so these institutions often use this source to invest in the government bond market (including the treasury bill auction market organized by the State Bank). Securities companies: There are currently about 100 securities companies operating. These companies are important financial institutions participating in repo activities on the stock exchange. In the past, securities companies mainly performed brokerage of stocks and bonds. Microfinance institutions, other enterprises: This group of subjects has not had a clear role in the Vietnamese stock exchange.

- Fifth : Enterprises and individuals participate in the money market as investors in debt instruments. Enterprises and individuals are a subject participating in the money market. Enterprises and individuals are both depositors and borrowers, but mainly borrowers. In recent years, along with reforms in the legal system and business environment, enterprises and all classes of people in Vietnam have made significant progress, the number of enterprises has increased rapidly, the scale of operations has expanded, production and business efficiency has improved... these are favorable conditions for bank credit to develop.

2.2.2.2. Limitations

- Firstly, in Vietnam today there is no truly developed currency market. In fact, to have a real market economy, there must be an economic environment for economic organizations and individuals to fully promote their roles, but


must be subject to the laws of the market. From that perspective, the context of Vietnam in recent times has many shortcomings:

+ Small business scale and outdated technology.

+ The business structure is not reasonable. State-owned enterprises are slow to be consolidated and reorganized, the speed of equitization and ownership conversion is too slow and is facing many obstacles.

+ The financial situation of many enterprises is very weak; profit margins are low, some businesses are losing money; debts are entangled with each other; the financial autonomy coefficient is too low... Besides, although the competitiveness of enterprises has improved, it has only been affirmed in a few products, many other goods and services, especially high-end goods and high-tech export goods, are still very limited. Even when Vietnam is still implementing a strong protection policy, the competitiveness of domestic enterprises is still very low, the risk of "losing right at home" is an alarming reality.

- Second, the State Bank is the central bank that performs three functions: issuing money, being a bank for banks, and being a bank for the government. However, in reality, it can only perform two functions: issuing money and being a bank for banks, while the function of being a bank for the government has not been fully performed. In addition to banks, the Ministry of Finance also manages government credit capital in Vietnam, so there is a phenomenon that in one area, commercial banks lend, while the treasury and development support funds also lend, but at cheaper interest rates, so there is unequal competition, which not only causes difficulties for banks but also affects the efficiency of capital use in the country.

- Third, in the past, no currency brokerage company has been established to specialize in exploiting intermediary brokerage and trading services in the interbank market. The organization, implementation and monitoring of transactions in the market are dispersed, through many focal points: credit department, monetary policy department, transaction offices, and branches of the State Bank of provinces and cities, which has limited the operation of the market.

In the Vietnamese interbank foreign exchange market, there is no broker operating. Because there is no currency broker, transactions in the interbank foreign exchange market are mainly direct transactions between members, so it is impossible to resolve


To solve the foreign currency demand in the market, commercial banks have not used the foreign currency trading market to make a profit but only solve the foreign currency demand to serve the needs of customers and comply with the foreign currency status according to the regulations of the State Bank.

- Fourth, the open market is not yet active. The number of participating members is low, mainly commercial banks. Credit institutions have not paid due attention to training a team of professional staff directly and in-depth in open market operations. Investment in equipment and techniques for open market operations is still limited. Credit institutions often still focus on traditional business activities such as lending without having the habit of doing business in the currency market, typically through open market operations.

The number of treasury bills that can be traded in the open market is concentrated in a number of state-owned commercial banks, because the winning bid volume of state-owned commercial banks in the treasury bill bidding market accounts for over 70% of the total winning bid volume. This shows that small-scale credit institutions are not qualified to compete with large-scale credit institutions, especially in the condition that the treasury bill bidding is conducted on the basis of the guiding interest rate. The use of treasury bills in the secondary market is not flexible, credit institutions often use these bills as an investment tool rather than a money market tool to regulate available capital. In fact, winning credit institutions often hold the bills until maturity, only a small part is used by banks as collateral for mutual loans or loans from the State Bank, bought and sold in the secondary market, and since July 2000, a small part of treasury bills has been used in the open market.

2.2.3. About the market system.

2.2.3.1. Achievements

- Firstly, the component markets of the TTTT have been formed. The market's birth and development, from no market to a market, has marked a step of innovation in the Vietnamese currency market. During its establishment, although the market's operations were still simple, it also marked a step of innovation in the Vietnamese banking system in the period of transition to a market economy. Although it has only been developed for a short time, basically, the Vietnamese TTTT has been formed relatively synchronously. The system of financial instruments of the market has been formed relatively fully such as treasury bills, treasury bonds; State Bank bills, deposit certificates, corporate bonds, local government bonds. Legal documents on

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