Brett Krause, Citi country officer in Vietnam, talks about the banking sector, investing in Vietnam, and the bank’s plans for the future.
What’s your view on the development of Vietnam’s banking sector?
One policy measure that has attracted a lot of attention and concern in banking circles is the move to raise minimum capital requirements. The initial hurdle of Vnd3 trillion (approximately $154 million) has been implemented and makes sense to avoid overly small and weak institutions. However, other policy tools will likely be more effective in spurring needed structural changes to the industry in the future, rather than further hikes in minimum capital levels. We think that it is important to promote a banking sector that has healthy institutions of all sizes, ranging from the largest global banks down to more specialised niche players serving only certain products or areas. Vietnam should avoid a “one size fits all” solution based on ever higher capital requirements given the relatively early stages of Vietnam’s market development.
The industry is still in growth mode with an expected compound annual growth rate of 15 percent or more during the next five years. Considering that less than 10 million people in the country (out of a population of 90 million) actively use a bank account, and more people own a scooter or a motorbike than a chequing account, there certainly is room for further growth. Still, I think the government has been prudent in how it has gone about growing the financial services sector to date and will work hard to ensure a strong banking sector that promotes healthy and constructive competition that benefits all stakeholders.
When you advise overseas corporations about investing in Vietnam, what do you see as the advantages of choosing Vietnam over, say, Laos or Cambodia as a place to do business?
It’s not difficult to see the advantages Vietnam has over a lot of Asian countries, not only its neighbours. Its huge population translates into a sizeable domestic market, while years of six-plus percent economic growth means consumers have more disposable income for all sorts of goods. Geographically, Vietnam is also closer to the West coast of the United States than its competitors, giving it a clear advantage in terms of manufacturing. Along with a rapidly growing financial services system and a commitment from the government to expand its infrastructure, it is no surprise that Vietnam is one of the prime investment destinations.
What are the disadvantages?
Vietnam faces serious competition for investment dollars not just from countries like Indonesia and China, but also from other emerging market countries in Latin America, Africa and elsewhere. We often see investors weighing the trade-offs between these investment destinations across a wide variety of factors including core infrastructure, political stability, labour market flexibility, and investment incentives.
It is clear from the emphasis the government has placed on infrastructure spending that this area needs investment. From energy to ports, there is huge demand for long-term financing. For example, Citi has just helped arrange $470 million in financing for PetroVietnam to construct its Nhon Trach 2 power plant.
Of course, there will be bumps on the road and Vietnam, like many other countries, will not be immune to global economic cycles and market bubbles. However, the government of Vietnam has proved it is capable of weathering difficult conditions, and they are now focused on stability and on promoting the key factors that will continue to attract investment.
Some say that Vietnam could be the recipient of the low-margin manufacturing that China wants to get out of. Do you expect Vietnam to take off in manufacturing over the next few years, or are there still too many hurdles (such as developing its infrastructure) that need to be handled first?
In terms of low-cost manufacturing, I think China is facing issues that any rapidly developing emerging economy would. They are the same issues that Singapore, for example, faced 10 or 20 years ago when rising costs pushed out their manufacturing base. I doubt costs in China have risen to that extent, but it certainly makes alternative locations attractive. Vietnam has the geographic suitability, a large and talented work force, and a relatively low cost base. Of course, there are hurdles such as infrastructure, but it’s encouraging to see that the government is addressing those and we are playing a leading role in supporting the government where we can with our experience from operating in over 100 countries around the world.
What plans does Citi have for further growth in Vietnam?
This is a significant year for us as we celebrate our 15th anniversary in the country. We have built up a sizeable franchise and our growth strategy for Vietnam is focused on accelerating the scaling-up of our brand and our businesses. Already, we have a network of more than 4,300 access points through local banks and the Vietnamese postal system. This network allows us to touch all of Vietnam from basically two branches and our electronic banking platform, which we were the first to launch in 1996.
On the retail side, we plan to soon roll out more products aimed at giving customers more options to manage and grow their wealth. These include credit cards, personal loans, and mortgage loans. We’re also looking to tap into the retail market for Asian expatriates, given the dominance of foreign investment from Taiwan, Korea, Japan, Malaysia and Singapore. Very often, the expats who come in, either as investors or entrepreneurs, are already Citigold clients.
In the institutional space, we are broadening our reach to governments, multinationals and local corporates. We are the leader in transaction services for multinational companies — which include cash management and trade finance services — foreign exchange and capital markets, and we want to build on that position. We are also doing our part to encourage trade flows by serving the subsidiaries of global multinational companies in Vietnam.