It has also been said that foreign banks in Vietnam have managed capital and liquidity better than domestic banks because they pay attention to policies that can help them raise funds at lower costs and build a safer loan portfolio.
While this is generally true, the real picture is more complex.
Many people in the banking industry say the customer bases of foreign banks and local banks are different, with the former attracting a great number of multinational corporations and domestic firms backed by foreign investment.
They have also financed many large state projects to build infrastructure or import airplanes.
It can be said that foreign banks’ customers often have a reputation for strong financial management and their projects are very likely to be effective and profitable.
Individuals also prefer keeping their money in foreign banks, thinking that it is safer although it means they will have to accept lower interest rates.
So, marketing strategies are not necessarily the only reason behind the successful capital management of foreign banks.
Their already built-up goodwill and the consumer perception about increased safety are important factors in attracting capital.
Generally, Vietnamese consumers believe foreign banks are trustworthy because they are under the umbrella of their mother companies, but many do not realize that several international banks were also hit hard by the recent financial crisis.
Compared to their foreign peers, local banks find it more difficult to attract clients.
First, global corporations have already established business relationships with international banks.
Second, local banks must offer higher interest rates to encourage customers to choose them over foreign banks.
Third, many local banks do not have the capacity to finance large projects.
A 2006 study by the International Monetary Fund found that foreign banks in developing countries have a less risky loan portfolio.
They lend to safer and more transparent customers, leaving what the IMF calls “informationally difficult firms” to domestic banks.
Among this group of more opaque customers, there are those whose projects are highly risky, for example investment in real estate and stocks.
But it is the limited choices on offer that force domestic banks to acquire riskier portfolios in order to maintain their market shares.
It is different in the U.S. and Europe, where being foreign is not an advantage – overseas and domestic banks alike have to enter risky market segments.
It should be noted that at a time when many local banks earned a lot from the real estate market and the stock market, foreign banks were still wary of the “bubbles.” It is a matter of experience.
Foreign banks have already witnessed many ups and downs in the financial markets of many countries around the world and can tell which slice of the pie is really delicious and which looks good but is in fact unhealthy.
So it is clear that the domestic banking sector needs to become more effective through improved capital, liquidity and risk management, as well as stricter monitoring of all financial activities.
Moreover, financial managers at banks must help businesses avoid decisions that can lead to financial disasters.
That said, businesses have to play their part as well.
They should be more transparent and allow their bankers to evaluate the risk of proposed ventures.
Customers’ unwillingness to disclose information and their eagerness to engage in high-risk ventures are systemic problems that plague the domestic market.
It will be hard for local banks to compete with foreign banks if these problems persist.
Source: TBKTSG |
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