Vietnam - What would the 'marriages' of Vietnamese and foreign banks bring?

Both the Vietnamese and foreign sides put high hopes on the strategic cooperation between them.

However, in many cases, the cooperation cannot bring the things they want.

Injecting money into Vietnamese banks and becoming strategic partners, foreign investors believe that they can intervene in the business strategies of the banks. However, it's not easy to do that.

Meanwhile, Vietnamese bankers believe that having foreign strategic partners is the easiest way for success. However, in many cases, the result is not as perfect as they expected.

HSBC-Techcombank - the perfect couple?

Most domestic joint stock banks, which have a small scale of operation with the modest chartered capital of 3000-5000 billion dong and earn money mostly on lending, want to join hands with foreign banks, which have powerful financial capability and good corporate governance.

They believe that the thorough knowledge of Vietnamese banks about the Vietnamese market and the high technologies of foreign banks would generate perfect entities.

As such, the marriage between HSBC and Techcombank seemed to create a "perfect couple." The British bank bought 10 percent of Techcombank's stakes in December 2005, and then bought 5 percent more in July 2007, raising its ownership ratio in the bank to 15 percent.

In September 2008, HSBC became the first foreign bank in Vietnam holding 20 percent of stakes of a Vietnamese bank, the highest foreign ownership ratio allowed by the State Bank, after it bought five percent more.

With the support of HSBC, Techcombank has joined the two biggest card alliances in Vietnam - Smartlink and Banknet.vn. Besides, HSBC has also helped Techcombank connect its ATM network with HSBC's ATM network

Meanwhile, deputy President of Techcombank, former CEO of the bank, simply said that the foreign strategic partner has helped the bank check its policies and build up the personnel structure in accordance with the modern governance model, and that a lot of important tasks have been completed by the two sides.

Especially, Techcombank maintains the "co-finance director" mechanism with one from Techcombank and the other from HSBC. The finance report of Techcombank has been made in accordance with international standards, which could be seen as the "hallmark" of HSBC.

What role do foreign partners play in Vietnamese banks It seems that HSBC has, to some extent, succeeded with its role as the strategic partner in Techcombank. However, analysts have commented that HSBC only gets involved in some segment of operation of Techcombank such as risk management, product development and finance administration. Meanwhile, the most important business strategies have been decided by a few influential persons in the board of directors.

The difference in the management model followed by Vietnamese and foreign banks has hindered foreign partners to play their roles in domestic banks. This usually happens with the household-run joint stock banks.

The representatives of foreign banks can hardly make deep interventions into the credit relations of the private owners of domestic banks. The only choice for foreign banks to be able to make intervention is that foreign banks get involved in the operation of the banks.

However, in order to do that, they need to be the biggest shareholders of the banks, the things which remain impossible for now, because foreigners are not allowed to hold more than 20 percent of stakes in a Vietnamese bank.

Dominic Scriven, general director of Dragon Capital, an investment fund management company, said at a recent workshop held in Hanoi in April 2012 that there exists the difference in the definition about the role of the members of board of directors and the confusion in the works of administration and operation.

Therefore, he, who was once a member of the board of directors of a Vietnamese bank, was left out in the process of drawing business strategies of the bank.

VietBiz24

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