Vietnam spotlight: What are the opportunities in the banking sector?
Vietnam’s burgeoning consumer market, increasing demand for SME funding, and the emergence of new finance models create a favorable environment for foreign investment (FI), as investors seek to capitalise on the nation’s banking sector.
Attractiveness of domestic banks surges M&A activity
Foreign investors will be keeping a keen eye on Vietnam’s banking sector, with strong consumer confidence in the growing stability and security of banks, which make up 40% of the country’s stock market.
The diversification of financial products in particular has roused increased M&A activity within the Vietnamese banking sector. Digital banking and e-wallets have expanded the customer base of domestic banks considerably, making them attractive acquisition targets for foreign investors seeking fast entry into the market.
S&P Global’s country focus report states, “Vietnam’s banking sector is poised for an increase in M&As over the next two years, as lenders seek to bolster their capital while the country’s economic growth attracts investors.”
In return, foreign investors offer a source of much-needed capital for domestic banks to bolster their capital adequacy ratios, currently among the lowest in the region.
Vietnamese banks have a role to play in shifting global value chains
Many global companies are pursuing a ‘China Plus One’ (C+1) strategy, intended to reduce their reliance on China (amid rising costs) by investing in another emerging economy, such as Turkey, Thailand or Vietnam.
The increasing tension between Washington D.C. and Beijing has further driven companies to diversify operations away from China in order to mitigate risk, benefitting nearby Vietnam – an attractive alternative. Local banks will be able to leverage these new markets and customer segments, as overseas businesses seek finance to propel their growth in the region.
Increasing competition from FinTechs: a challenge for traditional banks
Domestic banks hoping to take advantage of new supply chains and increasing foreign investment are up against competition. Digitally native banks, including FinTechs, are putting pressure on more established banks to invest in new technology and cybersecurity.
However, these challenges provide traditional banks with an opportunity to digitally overhaul their antiquated systems, leveraging thriving technologies from Open Banking to Generative AI. Smarter integrations, uninterrupted data flows and more personalised banking experiences can only mean improved competition for new customers and investors. This digital transformation can revolutionise the value creation in products and services and, in the case of Vietnam, redefine the landscape of the banking sector.
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