6 Analysis of Impact of Liberalization

In this section we use data obtained from our survey of 335 individual customers and 60 corporate
customers to analyze the impact of bank liberalization. The survey asks bank customers their
perception, preferences in using banking services, and reaction to the expansion of choices now open
to them as a result of liberalization. The questionnaire was designed with the assumption that banking
services will be liberalized to allow the entry of foreign providers on a full National Treatment basis,
though foreign service providers would receive no less favorable treatment than their local
counterparts. In such a situation, consumers of a service, banking in this case, should have an
expanded choice amongst foreign and Vietnamese service providers. Currently, these choices are
limited, as foreign banks are still restricted in a number of services, and in modes of supply. What we
hope to learn from the survey is how consumers would react to the expanded of choices opened up to
them. This reaction will give a hint of the competitiveness of Vietnamese banks as perceived by their
customers.

We also look at the way in which banks may react to the changing environment of more foreign
competition and higher customer sophistication. Through this analysis we will assess the impact of
banking liberalization on the economy as a whole, looking at the impact these changes will have on
the banking sector, with analysis of the potential change in market share of different players, based
on the reaction from customers and will also look at the impact on the economy an analysis of
potential benefits and challenges of banking liberalization for the economy as the whole.

Given the small and non-random sample selection, the results from this survey should be used as a
reflection of the perceptions of a sub-set of customers only. Despite this limitation, the survey and
analysis aims to send a message of the potential impact of local banking system liberalization in light
of its present competitiveness for consideration by bankers and policy makers.

6.1 Impacts on the Banking Sector – Customer Reaction

For credit services, the most important income-generating service, we have analyzed how customer’s
behavior would impact the bank’s balance sheet. We divided customers into corporate and individual,
and into those who may move from Vietnamese banks to foreign banks by each type of services,
against those who may not move. The services selected for this analysis include loans in Vietnam
dong and in foreign currencies, and deposits in dong and in foreign currency.

The numbers in the table below, from our customer survey, show the percentage of customers rather
than their share in the bank’s portfolio. Looking at this table, we can see that around 45% of
customers, corporate or individual, would like to switch their borrowing to foreign banks, rather than
borrowing from Vietnamese banks. Whether they can do so is a different story, as not every borrower
is qualified in terms of financial statements, profitability, transparency, and other conditions to borrow
from foreign banks. The results of our survey indicate that almost half of borrowers would prefer to
buy banking services from foreign banks. On the deposit side, more than half of the customers
surveyed intended to put their money in foreign banks, if they were able to choose and especially for
foreign currencies. The survey found that the loss in deposits would be more than in loans, which
means that Vietnamese banks could mobilize less financial resources for their own lending.

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