Marketing Topical Research Paper

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Global Marketing
Topical Research Paper
Chu Nguyen Binh - DBA Hanoi
NorthCentral University (NCU), USA

National University of Hanoi (Vietnam)
August 2009

Research title:
Where would be the market for foreign banks in Vietnam after joining WTO?

ABBREVIATION

BTABilateral Trade Agreement
CARCapital Adequacy Ratio
FBBForeign Bank Branch
FIBForeign Invested Bank
JSCBJoint Stock Commercial Bank
JVBJoint Venture Bank
MOFMinistry of Finance
NPLNon-Performing Loan
SBVState Bank of Vietnam
SOCBState Owned Commercial Bank
SOEState Owned Enterprise
SMESmall and Medium-sized Enterprise
SSCState Securities Commission
WBWorld Bank
WTOWorld Trade Organization

TABLE OF CONTENTS

ABBREVIATION
ABSTRACT
1. INTRODUCTION1
2. VIETNAM BANKING SECTOR - A SUMMARY1
3. CHARACTERISTICS OF THE VIETNAMESE BANKING INDUSTRY3
3.1. Very Low Market Penetration3
3.2. Rate of Growth in Both Loans and Deposits Far Exceeding GDP Growth3 3.3. A Highly Concentrated but Highly Fragmented Banking Market4 3.4. Heavy Handed Regulation with Restrictions on Foreign Banks5 3.5. Lack of Transparency Concerning Quality of Lending6

3.6. Heavily Undercapitalized7
3.7. Narrow Revenue Base and Few Product Offerings7
3.8. Unknown Quantity of Non-performing Loans8
4. BUSINESS ENVIRONMENT FOR THE BANKING SECTOR9
4.1. The Government’s Strategy9
4.2. State Bank of Vietnam - Freeing the Tiger9
4.3. Regulatory Environment - Meeting International Standards10 4.4. Developing the Capital Markets11
5. PROSPECTS FOR BANKING SECTOR GOING FORWARD12
5.1. Non-Performing Loan Ratios to Rise, But Risks of Bank Failures Looms12 5.2. Further Development Inhibited by Low Capital and Technology12 6. CONCLUSION14
REFERENCES15

ABSTRACT

Vietnam’s banking system is dominated by five state-owned banks, with around 70% of system assets at end-2008. Around 38 private banks comprise roughly another 25%, with the balance substantially accounted for by a host of foreign banks. In recent years, the private banks, being more commercially oriented, have grown rapidly at the expense of the state-owned banks’ market share. The foreign banks have also grown, as opportunities improved for them after Vietnam entered a bilateral trade agreement with the US in 2001 and acceded to the World Trade Organization (WTO) in 2006. The Research Paper will examine the Vietnam’s banking sector as a whole, including general characteristics of the Vietnamese banking market. It then analyzes the proportion in term of loan and deposit of state-owned, joint stock, joint venture and foreign banks. In the second part, the report lists opportunities for foreign banks to penetrate the Vietnam market under new legal requirement of the Vietnamese Government. They can establish 100% foreign bank entity, purchase stake in local banks or set up joint venture with Vietnamese partners. Finally, it will examine strengths and difficulties in terms of technology, expertise and experience, service quality, risk appetite, etc. of the foreign banks when operating in Vietnam market. 1. INTRODUCTION

There are a lot of banks in Vietnam. Too many in fact. Currently there are five state-run commercial banks, 38 joint stock commercial banks, four joint-venture banks, 29 foreign bank branches, 45 foreign bank representative offices, five finance companies and nine finance leasing firms operating in Vietnam. Since 1992, Vietnam has moved to a diversified sys-tem in which state-owned, joint-stock, joint-venture and foreign banks provide services to a broader customer base. However, the four main state-owned commercial banks - the Bank for Investment and Development of Vietnam (BIDV), the Bank for Foreign Trade...
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