UNTIL recently, Vietnam was an old-fashioned cash economy. Whether it was individuals buying big-ticket items such as houses and cars, or companies servicing their payrolls and accounts, almost every transaction was in cold hard cash. Usually this was the Vietnamese dong or US dollar, but stories abound of big purchases using gold. Even today, many companies continue to rely on cash, as fewer than 10 per cent of Vietnam's 85 million people have bank accounts. Economic reform has brought about dramatic change in the financial services sector. In particular, sophisticated financial instruments have been introduced.
Vietnam's accession to the World Trade Organization (WTO) in January 2007 was a catalyst for wide-ranging changes to all aspects of doing business. The legal and tax systems are being reformed, and the role of the private sector is being strengthened. The result has been a rapid flow of foreign investment, and the banking and finance industry has stepped up to meet the challenge. Where once the position of the state-owned banks was unassailable, new private players have significantly increased the range of services available.
Foreign banks now can set up 100 per cent foreign-owned subsidiaries, and some have formed strategic alliances with local banks to rapidly gain greater access to the market. For example, HSBC this year became one of the first foreign banks to receive in-principle approval from the State Bank of Vietnam - the central bank - to set up a locally incorporated subsidiary. HSBC also owns a 15 per cent stake in Techcombank. The economy can be best described as in transition from cash-based to non cash-based. Challenges remain in terms of paying salaries through bank accounts, ATM services and the use of debit cards, as these types of transactions started gaining popularity only a few years ago.
The Vietnamese banking industry remains heavily regulated by the central bank. Also, the government tightly controls foreign exchange transactions by individuals and companies, and the Vietnamese dong is not freely convertible. As a result, cash remains the principal form of payment for wages and purchases, with the US dollar an alternative.
However, opportunities more than make up for the challenges of doing business in Vietnam, which is one of the most under-banked countries in Asia, with a huge market waiting to be served. New services designed to meet the needs of business clients have emerged, and market conditions have prompted international banks to develop innovative solutions for corporate customers. One example is HSBC's establishment of electronic links with the major state-owned local banks, and using their branch networks to collect and distribute cash.
With an increasingly active capital market, it is even possible for companies to consider an initial public offer. Vietnam now has two exchanges. On the Ho Chi Minh Stock Exchange, which has been in operation since 2000, the number of listed companies has quadrupled in the past three years. On the Hanoi Securities Trading Center, smaller companies with capital of 10 billion dong (S $860,000) or more can be listed.
Post a Comment