The Vietnamese financial services sector is poised for rapid growth

Ho Chi Minh City, 21 May 2008 - “Poised for rapid growth: Entering the Vietnamese financial services sector” a new report from PricewaterhouseCoopers looks at the prospects for market development in the Vietnamese financial services sector and how international groups can address them.

According to the report, financial services markets in Vietnam are expanding rapidly. However, retail and the Small and Medium Enterprises (SME) market penetration is still relatively low, offering considerable opportunities for further growth.

Even though Vietnam is still a largely cash-based society, use of banking services is growing rapidly. The banking sector in Vietnam has been expanding at around 20% per annum since the beginning of the decade and has now reached some $80 billion in total assets. The revenues of the top 10 banks increased by an average of more than 50% and their profits by an average of 195% in 2006, as demand soared, efficiency improved and costs decreased. The potential for further expansion as the economy develops and incomes increase is evident from the fact that only around 5 million people have bank accounts and even fewer have credit cards.

A key development in the credit market in recent years has been the allowing of unsecured lending. In addition to consumer lending, another potential growth area has been SME credit, a sector that up until now has been largely funded by private savings. The expansion of the credit market and the offering of unsecured loans are placing tougher demands on risk management. The ability to rate creditworthiness is likely to be an important competitive differentiator for lenders, who will need to take account of both qualitative as well as quantitative factors, and may encourage some to seek access to the expertise of foreign partners. In the current environment in Vietnam, banks have to deal with many challenges on the credit side and other issues. These are very important challenges in the short term which bank management are addressing their minds to, but the underlying opportunities to the future remain very attractive.

Insurance is a fast growing but still largely untapped market. As the economy expands and affluence increases, demand for savings and risk protection is set to accelerate. While still at an early stage of development, the market has begun to open up into new areas such as credit, health and business liability insurance. There are only eight life companies and non-life insurance has tended to be much less open to foreign entrants. Restrictions are being gradually relaxed following WTO accession. However, access to agents and other distribution outlets, most of which are controlled by state companies, will be essential in making inroads into the non-life market and therefore some companies are now looking to acquisition.

Ian Lydall, Senior Partner of PricewaterhouseCoopers Vietnam said “Growth is accelerating within the Vietnamese financial services sector on the back of economic expansion. While growing demand and market opening offer further opportunities for organic growth, state-owned businesses still dominate many parts of the sector.

Foreign companies may need to seek strategic investments to gain access to a broader customer base. The correction in the stock market is reducing acquisition prices and providing an attractive investment window, and the best buys are being rapidly snapped up. International groups will need to move fast to gain a viable presence.”

“Although the financial sector is gradually easing restrictions on foreign investment, outright acquisition of banks, insurers and brokerage firms is unlikely until the government is satisfied that local companies can compete on equal footing. It is also imposing new curbs to help ensure that only investors prepared to make a long-term commitment to Vietnam will be allowed. Understanding and building relationships will be critical in developing a foothold in this market, as companies need to forge a rapport and shared strategic vision with potential partners,” added Mr. Lydall.

To request the publication “Poised for rapid growth: Entering the Vietnamese financial services sector”, please contact Peter Amaczi at +84 (8) 3823 0796.