From 2009 to now, OFDI activities of Vietnamese commercial banks have entered a period of strong development. According to GSO data (2020), the accumulated registered capital for outward investment in Vietnam's banking, insurance, and financial sectors increased from $115.1 million in 2009 to $821.8 million in 2019, more than 7 times and equivalent to the average growth of about 24.41% / year. The average size of a project also tends to increase from $28.8 million / project in 2009 to $37.4 million / project in 2019. By 2019, Vietnam has up to 7 banks goods with OFDI activities in 6 foreign markets, in which, Laos and Cambodia markets attract the largest amount of investment capital as well as the largest amount of investment. Other markets such as the US, Hong Kong, and the Czech Republic, though operating, are limited and unimpressive
According to summation in the world, there are 3 main motivations of commercial banks when making OFDI. Firstly, the motivation for following domestic customers to go abroad. Secondly, the motivation to diversify as well as to seek new customer markets. Thirdly, the motivation for finding technology, business know-how, and new products.
For Vietnamese commercial banks, it can be said that motivation for corporate customers is the most important goal in implementing OFDI in the early stages. This relationship is mutual, first of all, continuing to serve traditional customers. Thanks to the presence of Vietnamese commercial banks in foreign countries, the investment activities of Vietnamese enterprises have been more favorable and more developed. In fact, the data on trade and investment development between Vietnam and other countries that have Vietnamese commercial banks invested a lot before and after the time of 2009 speak quite clearly. This relationship then brings an increase in sales (and profits) to foreign financial institutions, which contributes to the increased efficiency of the parent bank's business. This is the main objective of the OFDI activities of commercial banks. This is also confirmed by the main customers of Vietnamese commercial banks in foreign markets, which still focus on Vietnamese enterprises in foreign markets, which are clearly shown through the structure of OFDI's capital in Vietnam.
In addition to customer motivation, customer market access is also an important motivation for Vietnamese commercial banks. This can be clearly seen through the investment areas and market penetration strategies of Vietnamese commercial banks, which are mainly less developed markets such as Laos and Cambodia. These are two neighboring countries, the expansion of investment activities in these two countries received support from the Governments of the two countries to enhance friendly cooperation. At the same time, because these two countries have many potentials and similarities with Vietnam, along with the proximity of geographical conditions, the deployment of services and market domination will be easier for Vietnamese commercial banks. Following these two markets, Myanmar is seen as a potential market. An interesting case in terms of investment area is the case of Vietinbank investing in Europe (opening branches in Berlin and Frankfurt, Germany), but in the past 8 years, Vietinbank's operation in Germany has not had many events as big as M&A so the goal of technology and market access can be eliminated.
With the two main drivers of OFDI of Vietnamese commercial banks, following the customers' footsteps and seeking new customer markets, profit and business performance goals were identified as the top goals. However, over 10 years since 2009 when OFDI of Vietnamese commercial banks began to enter a growth phase, the efficiency of the business segment in foreign markets of Vietnamese commercial banks many issues need clarification.
First of all, with BIDV, according to published information, the business results in foreign markets of BIDV are relatively positive. In the current Lao market, BIDV has two main presence: Lao Viet Bank (LVB, established in 1999) and Lao Viet Insurance Company (LVI, established in 2008). By the end of 2017, LVB reached a total asset of approximately $ 1.18 billion, ranking the fourth in the market, with a mobilized capital of $1.03 billion (of which mobilized capital from residents and economic organizations reached $632 billion, ranked 3rd in the whole market), outstanding loans reached $919 million ranked 3rd in the whole market, profit before tax was $ 11.6 million and ROE was 7.54%. For LVI, in 2017, total assets reached $ 18.6 million, total premium revenue reached $ 11.2 million, profit before tax reached $ 0.9 million, holds the second position in terms of original insurance revenue in the Lao non-life insurance market. In the Cambodian market, the most updated information is that by 2014, BIDC's total assets reached over $ 590 million, an increase of 19% compared to 2017, capital mobilization reached over $ 207 million, outstanding credit reached over $ 433 million. (BIDV's annual report 2018).
Sacombank and SHB are also banks with many years of business operation in Laos and Cambodia markets and the business information announced by the two banks are also quite positive. For Sacombank, in Laos market, by the end of 2017, total assets of Laos Sacombank reached $ 151.3 million, total mobilized capital reached $104.3 million (of which, mobilized from economic organizations reached $ 33.1 million), customer loans reached $87.6 million, EBT reached $1.37 million. In the Cambodian market, by the end of 2017, Sacombank Cambodia's total assets reached $ 171.2 million, total deposits reached $ 125.3 million (of which deposits from the economy reached $ 90.3 million), surplus debt reached $ 119.4 million, EBT reached $1.74 million. For SHB, as of December 31, 2018, SHB Laos had total assets of 1,325.3 billion Lao Kip, profit before tax of 17.1 billion Lao Kip, equivalent to 46.2 billion VND. In Cambodia, SHB has total assets of $ 246 million, profit before tax of $ 6.6 million, equivalent to 145.7 billion VND. (Annual report of Sacombank and SHB in 2019).
Vietinbank and Vietcombank also announced positive information on business activities in foreign markets. Specifically, with Vietinbank, by December 31, 2019, Vietinbank in Laos had a total outstanding debt of over US $ 203.6 million, a total raised capital of nearly $ 244 million, total assets of over $ 315 million, and a pre-tax profit $ 4,33 million, and ROE about 5.4%. For Vietcombank, in October 2019, Vietcombank established a bank with 100% foreign capital in Laos with a charter capital of $ 80 million. According to statistics of VCB Laos, by the end of September, after three months of operation, Vietcombank Laos has achieved a turnover of more than $ 1 million. Vietcombank's Vietnam financial company in Hong Kong in 2018 earned VND 12.17 billion profit. (Annual report of Vietcombank and Vietinbank 2019).
Based on the information released from banks, it can be seen that the business results in foreign markets are quite positive with the annual growth scale and profitability ratios at acceptable levels. receive.
In addition to the information published by commercial banks, information published from the central bank in foreign markets is also a valuable source of data to assess the business activities of Vietnamese commercial banks in these markets. In particular, the most accessible information is from the Central Bank of Cambodia published for the period 2013-2019. As follows:
Firstly, with the Return of Asset (ROA), the business results of commercial banks can be seen to be quite limited when in most years, Vietnamese commercial banks are lower than the industry average. Particularly in 2019, only SHB will achieve a positive level. In terms of trends, the ROA of Vietnamese commercial banks in Cambodia since 2015 is smaller than the market average. This shows that the business activities of Vietnamese commercial banks are influenced by internal factors rather than the business environment, or in other words, the market penetration level of these banks is limited.
Table 1: Return of Asset (ROA) of Vietnam’s banks in Cambodia (2013 - 2019)
The second indicator considered is the Net Interest Margin (NIM), which can be seen that Cambodia's NIM is quite high compared to the average in the Vietnamese market, especially with an upward trend. However, commercial banks in Vietnam tend to decrease and fluctuate abnormally. By 2019, NIM of 2 out of 3 Vietnamese banks was lower than the market average. Only SHB achieved higher, but this figure was quite unusual when it increased from 2.86% in 2018 to 4% in 2019. In 2018, all NIMs of all three Vietnamese banks were lower than the market average. The bank with the most positive NIM is Sacombank, which is 3.11%, still much lower than 3.83% of the market. In 2015, the situation was similar when only Sacombank achieved NIM on par with the market, the rest of the other banks were significantly lower. Explaining the reason why NIM of Vietnamese commercial banks in Cambodia market can fluctuate due to low market penetration.
Table 2: Net Interest Margin (NIM) of Vietnam’s banks in Cambodia (2013 - 2019)
However, in terms of NIM in the Cambodia market is higher than NIM in Vietnam (at about 2.8%), accordingly, in some respects, business activities in the Cambodian market of Vietnamese commercial banks are still contributing positively or potentially to bring about positive effects overall.
The third indicator is the performance indicators. Can be seen in most of the years, 3 Vietnamese commercial banks are much higher than the market average. In terms of trends, it can be seen that BIDC increased sharply from 2013 to 2019 with the level from 43.9% is quite good to 79%. Meanwhile, Sacombank is quite stable at about 70 - 75%. In contrast, SHB tended to decrease from 85% in 2014 to 28% in 2019. In general, this volatility is likely due to changes in banks' income, if excluding this change, it is likely The ratio of administration expense/income of Vietnamese commercial banks in Cambodia is about 70%. This is much higher than the market average of about 50%. This shows that the efficiency in the operation of Vietnamese commercial banks in Cambodia market is not high.
Table 3: Management expense ratio/income of Vietnamese banks in Cambodia (2013 - 2019)
Overall assessment of the business performance of Vietnamese commercial banks with the average of the Cambodian banking industry shows that the performance of Vietnamese commercial banks is not high. In terms of relative indicators and ranking according to the norms, Vietnamese commercial banks are still limited.
Firstly, overseas branches and subsidiaries operate mainly on the capital of the parent bank when the capital mobilized from the domestic water market is small compared to the total operating capital, indicating a large source of loan capital. Secondly, the business results are not high and the operation has only been effective in regional markets, especially the Laos market. Third, Vietnamese banks face many operational risks when the information published over the years is constantly fluctuating.
>> Vietnam’s economic overview in January 2020
Alice Hoang - Vietnam Credit