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Mobile phone seller follows trend into financial sector

von Amy Kazmin (Hanoi)

Rush to set up banks in Vietnam fuels fears that poor level of expertise will be spread even more thinly. A strong regulatory structure needs to be in place to deal with closer ties between conglomerates and banks to avoid concern about potentia vulnerability in the banking system.

Vietnam's FPT Corporation made its name as a distributor of mobile phones but it is now looking beyond its core communications technology business with plans to tap the nation's fast-growing financial services sector by opening a commercial bank.

FPT's business distributing mobile phones made by companies such as Nokia still accounts for most of its revenues. It has also branched out into software and internet services and is planning to build a $952m high-technology city in central Vietnam. But it latest ambitions are less clearly linked.

FPT is not alone in its aim to start a bank, for which it has received provisional approval from Vietnam's central bank. With only 10 per cent of Vietnam's 82m people using any kind of banking services, many big Vietnamese companies are rushing to gain permission to set up commercial banks, seeing such ventures as risk-free.

Surge of interest

The applicants include state companies such as Petrolimex (oil), Vinacomin (coal) and Vinachem (chemicals).

The surge of interest from would-be bankers has generated concern about the impact of the new entrants, especially players without core experience in banking and financial services.

"It's just a herd mentality," says Kevin Snowball, director at PXP Asset Management in Ho Chi Minh City. "Just because you know how to sell mobile phones doesn't mean you know how to run a bank."

It's not hard to see the appeal of setting up a bank in Vietnam, whose gross domestic product (GDP) has been growing at about 8.4 per cent a year.

Loans and deposits have been growing at 25 per cent to 35 per cent a year. McKinsey predicts that growth will remain buoyant as increasingly affluent Vietnamese consumers begin to use personal financial services.

Yet Benedict Bingham, the International Monetary Fund's representative in Hanoi, says there are indications that Vietnam's banking sector - dominated by four big state-owned banks but including about 35 domestic joint stock banks and a growing number of foreign players - needs some consolidation.

Expertise relatively thint

"By some measures, Vietnam is already over-banked," he says. "You have many small banks, which is a concern, given that the stock of banking expertise in Vietnam is relatively thin.

"With existing joint stock banks expanding their operations rapidly, that expertise is being spread ever thinner. You add a wave of new banks into the market, and you are going to stretch that expertise even thinner."

The State Bank of Vietnam, the central bank, is trying to nudge institutions to consolidate and, to that end, is raising capital requirements from $60m now to about $180m by 2010. But the human resource constraint is likely to remain.

The move by big state companies, which once relied on an uninterrupted flow of credit from state banks, to take significant stakes in new joint stock banks raises the prospect of connected lending. The central bank has regulations intended to prevent this but Mr Bingham questions whether the central bank has sufficient capacity and clout to supervise a financial institution partially owned by a powerful government conglomerate.

"A strong regulatory structure needs to be in place to deal with closer ties between conglomerates and banks to avoid concern about potential vulnerability in the banking system," Mr Bingham says.

Mr Snowball believes many companies hope to win banking licences because they have seen that foreign players are keen to invest in domestic banks to take advantage of local growth. Sumitomo Mitsui Financial Group recently bought a 15 per cent stake in the Exim Bank of Vietnam after a government move to raise the maximum stake a single foreign investor can hold to 15 per cent from 10 per cent. HSBC, BNP Paribas, Australia and New Zealand Banking Group and Standard Chartered have taken small stakes in other Vietnamese banks.

"Everyone thinks, 'set up a bank and sell it to the foreigner a few months down the line for a huge premium. It's a quick way of making money,' " Mr Snowball says.