While Vietnamese banks worry about Japanese and European rivals, the new Association of South East Asian Nations (ASEAN) Economic Community, or AEC, pact may open its market in 2015 to aggressive competition from closer neighbors.
A recent survey on banking in emerging markets conducted by global accounting firm EY found that 9 of 17 Vietnamese banks saw Japanese lenders as their biggest competitors; the rest considered European banks their key rivals.
That perception reflects a status quo that may change soon.
During a recent press conference in Hanoi, Keith Pogson, Managing Partner of EY’s Financial Services in the Asia Pacific region said Japanese lenders are unlikely to capitalize on Vietnam's untapped retail banking sector.
Vietnam's ASEAN rivals are far more likely to infiltrate the local market after the AEC breaks down regional banking barriers, he explained.
According to the survey, most Vietnamese banks expect a slight improvement in the economic outlook while expressing concerns that weak consumer demand and low productivity may adversely affect the economy.
Local banks are the least positive of all about lending to small and medium-sized enterprise (SME).
Given Vietnam's high levels of bad debt, Pogson said the banks have understandably sought to focus on larger enterprises .
However, he encouraged the government to foster lending to SMEs as they generate most jobs in the country, he said.
“Increased demand for credit is also expected, but with 76 percent of bankers worried about bad debts, the outlook for lending is less positive,” said EY.
The Vietnamese respondents said managing credit risk would be their greatest challenge. Twelve of 17 respondents planned to increase their loan loss provisions over the next 12 months and improving risk management was seen as critical to improving financial performance.
Vietnamese banks, like those in other developing markets, are focusing more on selling existing customers new products and services than attracting new borrowers. Expansion into new markets is now seen as even less important than in 2013. Meanwhile, developing new products and services, including fee-based ones are also seen as important, according to the survey.
Banks expect the greatest increase in demand will be for both personal loans and credit cards.
The survey reveals that 41 percent of Vietnamese customers planned to open or switch a credit card in the next year compared to 10 percent in Nigeria and 18 percent in Kenya.
They also expected a significant increase in demand for personal savings and deposit products.
Vietnam’s economy expanded by 5.18 percent in the first half from a year earlier. The government is trying to bolster an economy that the World Bank estimates will expand 5.4 percent this year, below a government target of 5.8 percent.