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Market Share of Vietnamese Commercial Banks



7

Financial Leasing Company

10

8

People's Credit Fund

905

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Market Share of Vietnamese Commercial Banks

Source: State Bank of Vietnam, May 2006

a) Vietnam Banking Group

Vietnam's banking group includes five state-owned commercial banks, one policy bank and 37 joint stock commercial banks.

The current Vietnamese commercial banking system still accounts for the majority of the deposit and lending market (see Table 3). This is because the Vietnamese financial market is not yet fully open, so foreign banks still face some restrictions in the domestic market. Meanwhile, domestic banks do not have to face restrictions on the scale of operations or the number of branches in an area. In addition, domestic banks still receive great support from state-owned enterprises as these enterprises still mainly use the services of these banks. This has created an advantage for the domestic banking system compared to foreign banks when Vietnam has not yet fully opened its financial market.

Table 3: Market share of Vietnamese commercial banks

Unit : %



2000

2001

2002

2003

2004

2005

Market share of Vietnamese commercial banks in capital mobilization

State Commercial Bank

77

80.1

79.3

78.1

75.2

73.93

Joint Stock Bank

11.3

9.2

10.1

11.2

13.2

16.72

Total

88.3

89.3

89.4

89.3

88.4

90.65

Market share of Vietnamese commercial banks in lending

State Commercial Bank

76.7

79

79.9

78.6

76.9

70.80

Joint Stock Bank

9.2

9.3

9.5

10.8

11.6

14.76

Total

85.9

88.3

88.4

89

88.5

85.56

Source: Annual Report – 2005, State Bank of Vietnam


The figures in the table above show that Vietnamese banks still account for a high proportion of capital mobilization from the economy and tend to increase again after a decrease of 0.9% in 2004 compared to 2003. However, we can also see that while the State-owned commercial banks are gradually reducing their market share, joint-stock banks are gradually increasing their market share in total capital mobilized from the economy. This is because most State-owned commercial banks still focus on serving large State-owned enterprises while joint-stock commercial banks have found niche markets serving small and medium-sized enterprises as well as individuals - markets with very high capital reserves.

On the contrary, the market share of Vietnamese banks in lending has been continuously decreasing since 2003, although the market share of joint-stock commercial banks has increased significantly thanks to the development of these banks. The reason is that foreign credit institutions are gradually expanding their operations and in the early stages, to attract customers, they have introduced more flexible lending mechanisms. Meanwhile, state-owned commercial banks are still not really sensitive to market demand. This will become a big challenge when Vietnam joins the WTO.

b) Foreign Banking Group

Currently, there are 3 types of foreign credit institutions operating in Vietnam: foreign bank branches, joint venture banks and 100% foreign-owned credit institutions (including joint venture finance companies, 100% foreign-owned finance companies, joint venture financial leasing companies and 100% foreign-owned financial leasing companies). As of the end of December 2005, there were 31 foreign bank branches, 5 joint venture banks, 2 100% foreign-owned main financial leasing companies, 1 joint venture main financial leasing company and 45 foreign bank representative offices operating in Vietnam 4 .

The group of foreign banks accounts for a modest market share, less than 10%, in both the credit and lending sectors (see Table 4). Reasons explaining the current situation

4 State Bank of Vietnam, December 2005


This means that these banks still have to face restrictions on customer groups and ceilings for loans ... However, because Vietnam officially joined the WTO on November 7, 2006, in the near future these restrictions will no longer be an obstacle for foreign credit institutions.

Table 4: Market share of foreign banks in Vietnam

Unit : %



2000

2001

2002

2003

2004

2005

Market share of foreign banks in capital mobilization

Foreign bank branch

9.2

8.8

8.1

7.8

8.2

6.95

Joint Venture Bank

1.1

1.2

1.3

1.5

1.5

0.97

Total

10.3

10

9.4

9.3

9.7

7.92

Market share of foreign banks in lending

Foreign bank branch

11.3

9.5

7.7

7.7

8.3

8.31

Joint Venture Bank

1

1

1.1

1.2

1.2

1.17

Total

12.3

10.5

8.8

8.9

9.5

9.48

Source: Annual Report – 2005, State Bank of Vietnam


As analyzed above, although foreign credit institutions have an advantage in capital and are increasingly expanding their operations effectively in the Vietnamese market, due to certain limitations, the market share of this group of banks in lending as well as capital mobilization from the economy remains low. In particular, the market share in capital mobilization of foreign credit institutions in 2005 decreased significantly compared to 2004 (from 9.7% to 7.92%). If preferential loans from state-owned commercial banks for government projects are excluded, the market share of foreign banks in a more competitive market would increase to 15-17%.


2.1.1.2 The development of banking services in Vietnam


In recent years, the banking services market has undergone many important changes in improving the quality of traditional banking services as well as introducing modern banking services. The implementation of commitment roadmaps in the financial and banking sector has given customers the opportunity to access a variety of products and services.


a) Traditional banking services

Account provisioning services

Personal Account Total Accounts

10000


8000


6000


4000


2000


0

Year

2001 2002 2003 2004 2005

Thousand assets​​

Through the account opening, customers can use non-cash payment methods such as checks, collection orders, payment orders, cards... to make transactions, transfer money, pay for living services such as electricity, water, telephone... conveniently and safely. Realizing these benefits, in recent years (since 2003), the number of accounts opened at all Vietnamese banks has increased continuously at a rate of over 300%/year and by the end of June 2006, the number of accounts had reached 15 million accounts, of which the number of personal accounts increased rapidly with the development of card business services.


Figure 1: Number of accounts opened at Vietnamese banks, 2001 – 2005

Mobilizing capital from economic organizations and residents


This is a form of mobilizing idle funds from economic organizations and residents that commercial banks have promoted in recent years because they realize that this is a source of capital with great potential. Currently, the type of deposits that customers deposit in banks is mainly Vietnamese Dong and some strong foreign currencies such as US Dollar, British Pound and Euro. Table 5: Capital mobilization situation of state-owned commercial banks, 2001 - 2005

Unit: Billion VND



2001

2002

2003

2004

2005

Vietcombank

76,810

81,495

97,320

105,000

122,452

Incombank

49,402

59,284

71,146

81,596

96,447

Agribank

33,406

46,768

60,130

76,500

92,848

BIDV

39,049

46,189

60,024

67,262

87,026


2005 marked strong growth of banks in capital mobilization.

mobilize capital from the residential sector by the race on deposit interest rates of banks.

Typically, the Investment and Development Bank had a capital mobilization growth rate of 129% in 2005 and the Bank for Agriculture and Rural Development had a capital mobilization growth rate of 126% in 2005.

Issuance of securities

Issuing valuable papers is a form of capital mobilization of the Bank. Valuable papers such as promissory notes, bonds and certificates of deposit are debt instruments, recording the Bank's debt to customers who own those instruments. In an effort to effectively expand medium and long-term credit, commercial banks have continuously issued valuable papers such as promissory notes, certificates of deposit or bonds with attractive interest rates.

Document discounting service

Discounting of documents is the act of commercial banks to buy back valuable documents that have not yet reached maturity to meet the capital needs of customers. There are 2 main types of discounts:


• Discounting of valuable documents: Commercial banks purchase documents such as promissory notes and savings books issued by commercial banks.

• Discounting export payment documents, including:

- Non-recourse discount: Commercial bank buys all documents.

- Recourse discount: The discounting bank has the right to reclaim money from customers if the foreign bank refuses to pay.

Loan Services

Commercial banks provide loans to meet customers' capital needs in Vietnamese Dong or strong foreign currencies with loan terms divided into 3 main types: Short-term, medium-term and long-term. To meet the increasingly diverse market needs, current lending methods are also very diverse: single-time lending, lending by limit, lending by project and especially syndicated lending.


b) Modern banking services

Expanding international trade means the development of financial and banking services, especially modern banking services that can meet the general requirements of the international market. Modern banking services currently provided by the Vietnamese commercial banking system include:

Guarantee services

Currently, commercial banks are providing the following types of guarantees:

• Guarantee medium and long-term commercial credit for economic organizations;

• Credit guarantee for State customers;

• Short-term / medium and long-term loan guarantees

• Contract performance / payment guarantee;

• Bid security;

• Counter-guarantee/on a counter-basis

• Confirmation of guarantee;

• Other types of guarantees.


Financial leasing services

In order to support customers who need medium and long-term investment to renew equipment and develop production and business, the Bank provides financial leasing services through which customers can use the leased assets and gradually pay the rental during the agreed period and cannot cancel the lease contract early. Along with the diverse and rich development of international trade, the demand for financial leasing services is increasing in both quality and leasing objects. Currently, the financial leasing objects that the Bank provides include: construction and mining equipment, means of transportation and irrigation, technological lines and industrial equipment, medical equipment, hydraulic lifting equipment, precision mechanics, office telecommunications equipment, specialized equipment and other types of real estate.

International payment services

Most of Vietnam's commercial banks have now joined the SWIFT payment system (Syst. Worldwide Interbank Financial Telecommunication). Through this payment system, customers can pay import-export contracts quickly, conveniently and safely. Therefore, in recent years, the import-export payment turnover of banks has increased sharply, especially Vietcombank:

Table 6: Export and import payment turnover – Vietcombank, 2001 – 2005


Year

2001

2002

2003

2004

2005



Value


Market share

Value (percent)

USD)

Market share (a)

Value (percent)

USD)

Market share (a)

Value (percent)

USD)

Market share (a)

Value (billion USD)

Market share (a)

DSTT Export

4,341

28.5%

4,675

28.3%

5,692

28.2%

9,414

26.3%

9,375

28.9%

DSTT NK

4,470

29%

5,541

28.7%

6,756

26.8%

6,968

29.5%

11,583

31.3%

Growth rate

-

28.5%

21.9%

31.6%

27.8%

a Market share compared to the country's export and import turnover

b Growth rate of import-export turnover compared to previous year


Money transfer service


With the use of the international quality SWIFT payment system, commercial banks can now receive and process all money transfer requests from domestic and foreign customers in an updated, accurate, safe manner, with simple procedures and at the most attractive fees. Especially for large commercial banks with a network of transaction offices and branches in most provinces and cities, this service is increasingly of high quality and meets the increasing demands of all customers.

Card Services

In recent years, card issuance and payment services have developed at a very fast pace, especially payment card services. The payment card market began to form in Vietnam in the 90s of the last century and really exploded since 2002, when banks issued domestic debit cards (ATM cards) and ATM systems. In 2002 alone, 25,000 cards (including domestic debit cards and international cards) were newly issued, nearly double the total number of cards issued in the period 1996-2001.

With a growth rate of 300% in the last 3 consecutive years, it is forecasted that by the end of 2006, the total number of payment cards issued in Vietnam will exceed 3.5 million. Payment turnover, therefore, has also grown strongly. In 2002-2006 alone, international card usage turnover is estimated to increase 50 times and reach 200 million USD by the end of this year 5 .


DOMESTIC CREDIT CARDS ISSUED 2003 – 2005

Thousand cards

2240

1200

390

3000

INTERNATIONAL CREDIT CARD ISSUED 2003 – 2005

Thousand cards

122.8

86.5

70

150


2000 100


1000 50


0

2003 2004 2005

0

2003 2004 2005


Figure 2a Figure 2b

Figure 2a, 2b: Domestic and international credit cards issued



5 Figures were published by the Vietnam Bank Card Association on August 15, 2006.

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