Year: 2015

According to data released by the Portuguese Statistics Office (INE), Portugal’s GDP registered 1.5 percent YOY growth in 1Q15, which compares with 0.6 percent growth in the previous quarter. This positive variation of GDP in 1Q15 means that the Portuguese economy has completed a cycle of six consecutive quarters of YOY growth, following contractions in GDP between 1Q11 and 3Q13. In 1Q15 the Portuguese GDP grew 0.4 percent per quarter, similar to the growth between October and December 2014.

Reducing the external imbalance of the Portuguese economy was one of the priorities of Portugal’s economic and financial adjustment programme implemented between May 2011 and May 2014. This entailed rebalancing the current and capital accounts – with deficits of around 10 percent of GDP between 2000 and 2010, followed by a surplus of roughly two percent of GDP in 2014. The steady reduction of the government deficit, as well as the deleveraging of the private sector was positive from the fourth quarter of 2012 onwards.

Before 2011, the Portuguese bond market could be split in two segments: rated and non-rated issuers

The latest projections from the Bank of Portugal (BoP) forecast the continued improvement in the current and capital accounts as a percentage of GDP, reflecting a fall in the external imbalance of the Portuguese economy. The performance of GDP over recent quarters had a positive impact on confidence and economic activity indicators, which are both expected to gradually perform more positively over the coming years.

Predicting projections
The BoP disclosed its updated projections in mid-June for 2015 to 2017 periods. For 2015 the BoP projects GDP growth of 1.7 percent, underpinned by greater optimism for domestic demand – revising up the contribution from this component of GDP – and the continued contribution of net external demand. In terms of domestic demand, BoP projections for 2015 are of 2.2 percent growth in private consumption (which is an increase of 2.4 percent on previous estimates), a 0.5 percent fall in public consumption (the same as previous estimates) and a 6.2 percent rise in investment (against a increased four percent forecast previously).

In relation to net external demand, exports should grow 4.8 percent, while the growth rate for imports is expected to be 5.7 percent, against estimates of 4.3 percent and 3.9 percent respectively in the March Economic Bulletin. The European Commission, IMF and OECD make similar projections for 2015, considering that the economic recovery will be due to more buoyant domestic demand, especially private consumption and investment.

The Portuguese Central Bank’s projections for the domestic economy continue to indicate a gradual recovery over the coming years, with growth rates similar to those of other countries in the eurozone. The balance of the current and capital accounts should remain positive in 2015, corresponding to three percent of GDP, which confirms the continuation of the adjustment process of the external imbalance of the economy, rising to around 3.4 percent of GDP in 2017, according to the BoP.

INE data reveal that the budget deficit for 2014 stood at 4.5 percent of GDP. According to the first 2015 notification on the Excessive Deficit Procedure, the budget deficit for 2014 amounted to €7.7bn, with GDP rising to €173.05bn, which is a reduction of €460m from the 2013 deficit of €8.18bn – amounting to 4.8 percent of GDP. It is estimated that the budget deficit for 2015 will be 2.7 percent of GDP. In 2010, the budget deficit corresponded to 9.8 percent of GDP. Despite the steady decline in the budget deficit, the ratio of public debt to GDP increased from 111.1 percent in 2011 to 130.2 percent at the end of 2014 (see Fig. 1). Nevertheless, this is expected to decrease steadily over the coming years to below to 110 percent in 2019.

Leading a responsive market
In the recent years, CaixaBI played a significant role to help the Portuguese bond market recover what was lost during the sovereign crisis. After a 65 percent fall of the amount issued in 2011 relative to 2010, the market recovered immediately the year after and continued to steadily improve in the ensuing years. However what seems to be a mere catch-up of lost ground hides considerable underlying changes that have occurred in the last five years.

Running the risk of being overly simplistic, it can be said that before 2011 the Portuguese bond market could be split in two segments: rated and non-rated issuers. The overwhelming majority of the issuers pertaining to the first group were investment grade. Typically these issuers would come to the market regularly to place benchmark transactions in the euro bond market. These included the top banks (CGD, BCP, BES, BPI and Santander Totta), the major corporates (EDP – Energias de Portugal, Portugal Telecom, REN – Redes Energéticas Nacionais and Brisa) and state-owned companies (Refer, CP and Metropolitano de Lisboa).

Before 2011, all the remainder issuers tapped the domestic bond market with private transactions that typically were underwritten by a bank or a group of banks. It was very uncommon to see these transactions being placed into other institutional clients. It was in fact just an alternative way for banks to provide credit to this universe of corporates. There were some specific cases of pure market transactions, and retail placements were even scarcer.

It was precisely in this segment and with placements into the retail universe that major transformations recently started in the Portuguese market. In December 2011, EDP – a rated issuer – opened the door for many other issuers, rated and non-rated. EDP launched a six percent coupon, three year and €200m deal targeted to retail investors. The institutional market had been shut for Portuguese issuers during the sovereign crisis and EDP grabbed the existing strong appetite from retail investors for relatively high interest rates.

Not only rated issuers took advantage of this sudden interest by retail investors. Corporates with well-known household brand names perceived as solid investments followed suit. Zon, (today known as NOS in the telecommunications industry), Semapa (pulp and paper) and Mota Engil (construction) were some of the names that also took advantage of this window of opportunity.

Portugal’s retail outlet
After the surge of retail placements, they gradually fell out of use. However, unlike before a retail bond culture stayed among Portuguese investors, having introduced new dynamics to the Portuguese capital markets both on the primary and secondary market. This in turn has allowed lead managers to quote two-way markets in most transactions, and it’s not uncommon to see top global dealers quoting on some of these.

Concerning the primary markets, evidence of a landscape change can be confirmed in terms of amounts issued, and in 2014 non-bank corporates issued €6.1bn. That is just four percent above the 2009 peak. However the number of transactions has risen at a steady pace since 2011. In 2014 the number of issues were 3.5 times that of 2009. The average size per transaction has been reduced mainly because the typical issuer in the market is different from that of the period prior to 2011.

The great transformation that has occurred was that unlike before 2011, an increasing number of non-rated issuers have tapped the market with transactions that were placed with institutional investors as well as banks. Since issuers are smaller-sized companies, transactions were on average smaller as well. Some of those were already known by the market but increased their presence issuing larger volumes than in the past. Examples include the transactions of NOS, Mota Engil and Semapa. More importantly, the market has seen an increased number of new issuers, allowing for a more diversified market sector. A few examples of these names are: Bial-Portela (in pharmaceuticals), José de Mello Saude (in healthcare), Saudeçor (also in healthcare), Sonae Capital (in tourism) and Media Capital (in media).

The Portuguese bond market has finally become that – a market – and CaixaBI has played a vital role, leading and co-leading in all major operations. Where before a significant portion of bond transactions were just instruments for banks to provide credit to corporates, in recent years an increasing number of issuers have come to the market to place bonds for final institutional investors. Apparently the catalysts were the banks and their need to deleverage a wave of interest from retail clients to create the dynamics required to raise interest from institutional investors. Gone is the myth that a bond issue had to be a benchmark to be liquid, and to have screen prices on the secondary market.

Just over a decade ago, the Dominican economy was in ruin. Following rapid growth fuelled by manufacturing, tourism and funds sent home from citizens abroad, the misguided bailout of Banco Intercontinental in 2003 caused government debt to double and the currency to collapse. A drastic overhaul was needed in order to restore macroeconomic stability and confidence in the financial sector, as well as taming the spiralling interest and inflation rates.

Despite such overbearing challenges, this is exactly what has been achieved in the years that have followed. A series of hard-hitting financial reforms and the close coordination between monetary and fiscal policies have ushered in a new period of economic growth and a revitalisation in all sectors, including the banking industry.

Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses and greatly improved performance (see Fig. 1). As a result of such reforms, the finance industry in the Dominican Republic is now flourishing, while its continued growth is driven by the country’s largest private and capital bank, Banco Popular Dominicano (BPD). World Finance had the opportunity to speak with BPD’s Executive Vice President of International Businesses and Private Banking, Luis E Espínola, about the economic challenges that have been impressively overcome in recent years, and the future of the Dominican financial sector.

Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses

Transforming the industry
New regulations, such as additional capital requirements, have been implemented effectively since 2003, thereby creating a stronger regulatory framework. Enhanced transparency in the eyes of the general public has been a key step, which has been supported via independent regulatory institutions and the introduction of relevant banking requirements. The publishing of monthly and annual financial statements, as well as detailed information on the loan portfolios of various financial intermediaries, have further improved the levels of transparency within the sector and contributed to its healthy development. Therefore, the financial system has been able to develop more competitively through a model of risk-based supervision, which features high levels of liquidity and solvency, as well as greater international openness. “These measures have contributed to the healthy development of the financial sector, in line with the steady growth and improved fiscal management that the country has experienced in recent years”, said Espínola.

Given the impressive turnaround achieved, various steps have been taken in order to prevent the economic crisis from reoccurring, namely enhanced financial regulations have been applied to compliance and risk assessment management. “The principles of the Basel Accords were also adopted so as to enhance the standing of Dominican Republic’s financial sector within the international system”, Espínola continued. Furthermore, market risk is now highly regulated by ensuring equal treatment to all entities, regardless of capital origin.

The periodic review of contingency plans is also employed in order to address the shortage of funds of financial intermediaries. “Regular stress tests and reviews of the Board of Directors’ meeting minutes really help to monitor internal decisions”, Espínola explained. Moreover, the adoption of the Regulation on Corporate Governance for Financial Entities and the User Protection Regulation of Financial Services have both played central roles in strengthening confidence in the financial system, improving internal management and promoting financial education.

The Monetary and Financial Law has made a considerable impact to the consolidation of the financial sector, while also facilitating the monitoring of markets and improving market indicators. “One of the greatest achievements is the improvement of the loan portfolio’s quality, which by the end of 2014 had a default rate of 1.3 percent”, said Espínola. “While in the business side of the industry, companies are now looking for solutions that will help them to streamline operations, mitigate risk and lower their costs. Banco Popular Dominicano has adapted and successfully put into motion a portfolio of products that accommodates the changing times.”

Integrating app development
Technology is central to the continued development of the country’s financial sector, and is used as a tool by BPD in order to promote enhanced customer satisfaction and financial inclusion. “Our institution has been at the forefront of technological innovation locally. We were the first to develop and introduce a fully functional smartphone app that allows customers to make transactions and find offers available in stores, restaurants and other businesses”, Espínola explained.

The map-based app, which has an augmented reality view and geo positioning, has become widely popular in the country. In 2014, it had approximately 950,000 transactions – a 300 percent increase from previous years. Then there is BPD’s recent partnership with PayPal, which allows customers to make transfers from their PayPal account to their BPD account. “With this service we have encouraged our SMEs to market their products and services online locally and worldwide.”

In the corporate sector, the organisation has implemented several cash management products that have received wide acclaim. The Smart Safe is an example of one of BPD’s most successful products, consisting of an electronic vault installed within an office that accepts cash deposits and immediately reflects the availability of cash on a customer’s account.

In addition to its support of the private sector and local markets, BPD has developed several products that strive to serve disadvantaged and low-income groups: “We have programmes to help clients to plan a future and save funds in order to achieve their goals”, said Espínola. “Through our latest programme [called] ‘Tu Casa’, we can help our customers to plan their savings and achieve specific amounts in a designated account for long-term mortgages. With this service BPD seeks to support families that otherwise would never afford a roof over their heads. We also have savings accounts with no service charges and very low minimum balances available for low-income clients.”

Financial inclusion is one area that BPD strives to promote through such policies: “Financial inclusion is more than just a philanthropic subject. It is also an opportunity for our institution”, added Espínola. Working with over 952 banking sub-agents has enabled BPD to reach communities that would otherwise not have access to any banking services.

One of the main challenges which continues to face the Dominican Republic’s banking sector, both at a local and regional level, is the use of technology in order to achieve greater financial inclusion. “It has also been challenging to meet the ever changing consumer demands, especially of newer generations who are accustomed to using sophisticated technology constantly in their everyday lives”, said Espínola. In order to offset evolving customer needs and preferences, in recent years BPD has invested heavily in various platforms, which has brought the institution to the forefront of banking technology in the country. “This year, we have been in a position to launch several initiatives that will help us to complete our goal of being the most innovative institution in the Dominican Republic.”

Strength in numbers
BPD is focused on strengthening the sustainability of all business segments; to this end, the institution continues to endorse financial educational programmes and to invest in technology platforms that can develop new channels of financial inclusion. This includes more options via BPD’s online banking services, which will enable customers to conveniently fulfil their banking needs. “We have allocated many resources to our newly launched web page, which has a very user friendly interface and is designed to allow current and new customers to solicit most of our products and services online – without making a phone call or visit one of our branches.” After being launched this February, the website has already received over 8,000 credit card applications, almost 7,000 loan applications and just over 3,000 requests for new accounts.

Targeting the youth is a vital aspect of BPD’s business model. “The web page and the mobile app we launched back in 2013 are great assets when approaching a young segment that appreciates the comfort of mobility and are looking for simple and efficient approaches to their banking. Through this app, our financial education campaign and our collaboration with several universities to support entrepreneurship programmes, we plan to bring in the new generation and grow with them”, Espínola explained. “We are also focusing on increasing our market penetration in the youth and young adult segments, and expanding in the tourism and export industries.”

Meeting customer needs remains at the forefront of the bank’s strategy, and as such BPD has invested significantly into developing existing and new products that accomplish smarter, safer and more efficient ways for clients to manage their accounts and make requests. For example, corporate clients are offered products that focus on asset management and enable them to handle their cash and account payables in much easier and more efficient ways. Moreover, a programme called ProExporta has been launched for export-focused industries, which offers a full portfolio of services, along with regular educational seminars in order to support newly-established SMEs.

“The ProExporta initiative was recognised by the Association of Exports of the Dominican Republic for being the biggest supporter of this growing industry”, said Espínola. Another programme, which is successfully supporting SMEs in the country is Impulsa Popular. Since it was established in 2012 it has provided assistance in all types of financing, account and cash management, as well as other services and educational seminars. By offering such involved and resourceful support, BPD is helping to drive one of the most important segments of the Dominican economy, and as a result, such programmes and initiatives help propel the country’s continued growth.

This year is proving to be another successful period for BPD and a fine example of its innovative strategies and holistic approach. It’s alliance with PayPal, the deployment of deposit accepting ATMs and nationwide Smart Safes, together with the launch of a new website are all part of a proactive strategy that the institution has set for the coming years. “Banco Popular Dominicano will increase its presence in a younger market, which is in the forefront of the entrepreneurship movement. We are also working to develop products that will fit the needs of these individuals and encourage them to establish a relationship with our institution that will help them succeed.”

One bank may have caused the country’s economic collapse, but in just over a decade, another has come to its rescue. Achieving what many would have considered impossible, BPD has become a pillar of Dominican Republic’s economy and enduring fiscal growth.

Vietnam’s banking industry is the lifeline of the economy and the biggest driver of the country’s growth. It plays a crucial role in the financial intermediaries system and is relied upon heavily by the economy, largely as a result of an under-developed capital market. In recent years, Vietnam’s financial sector has undergone a series of significant changes, which have led to marked improvements. For example, by the end of 2014, total assets grew by 1.5 times GDP, while total credit for the economy has reached 100 percent of the GDP, thereby creating a favourable environment that can meet the country’s development needs.

Following the impact of the global financial crisis, positive recovery signs can be seen in Vietnam’s banking sector. That being said, certain areas still require improvement in order to build a more sustainable and efficient financial system, such as adopting more international administration standards, resolving bad debt and the need for greater transparency. Refining capital demand, levels of liquidity and better risk protection can also contribute to a more robust financial sector. Despite such challenges, Vietnam is at a pivotal moment in its banking history and on the cusp of a new period in terms of development. Nguyen Dinh Tung, CEO of Orient Commercial Joint Stock Bank (OCB), told World Finance about the ongoing reform of Vietnam’s banking industry.

Enhancing the mechanisms to achieve greater competitive power for Vietnam’s banking system can bring it up to par with other countries in
the region

A budding industry
As the leading organisation within the sector, the State Bank of Vietnam (TSBV) is shaping industrial development, while also bolstering financial activities and strongly supporting economic improvement. “In recent years, TSBV has deployed a series of hard-hitting administrative solutions in order to deeply reform the banking sector and resolve challenges within the financial industry, particularly in regards to bad debt and credit capital flow guarantees”, said Tung. This is being achieved through the thorough inspection, supervision and, if necessary, reconstruction of credit organisations. The process allows the accurate evaluation of an institution’s operations, administrative capabilities and transparency levels, thereby permitting a holistic overview of each bank’s proficiencies.

Reform has led to the withdrawal of poorly operating banks from the market, which in effect is creating a more proficient financial sector. “In such cases, TSBV has accommodated the exit and directly bought back shares”, said Tung. TSBV also encourages knowledge sharing of possible mergers in order to increase competitive power. Moreover, banks are urged to set systemic bad debt to below three percent, which can be achieved by selling bad debt to the Vietnam Asset Management Company, thus increasing credit quality within the system.

The recent trend of regional and international integration, in regards to the ASEAN community in particular, presents further opportunities for the enlargement of Vietnam’s financial sector. “Enhancing the mechanisms to achieve greater competitive power for Vietnam’s banking system can bring it up to par with other countries in the region”, said Tung.

Leader of the pack
In progressing along with Vietnam’s banking system, OCB has implemented a strategy to become a leading retail bank. “Our mission is to create optimum solutions for our customers and investors”, said Tung. “In order to achieve this goal, we are investing heavily in reconstruction activities.”

As such, OCB has transformed its operating model to incorporate specialist groups that can serve various types of customers, from individuals and SMEs, to big firms and niche business groups. “The aim is to optimise the business model together with offering the best service for all customer groups”, said Tung. OCB is also developing new corporation identify programmes in order to revitalise its look and appeal as a modern, friendly and convenient bank. Creating a favourable exchange environment will also enhance the customer experience.

Given the trend of digital technology, particularly within the banking industry, OCB is investing in new platforms in order to reach its target of becoming one of Vietnam’s top five banks. Using digital technology can also attract new customers, while simultaneously encouraging existing customers to use more products and services on offer.

Risk management is another major area of focus for OCB, which is working closely with KPMG so as to meet international standards and Basel II. Moreover, this partnership is helping the bank to employ customer credit rating models, effective risk management schemes, credit index management and a robust debt resolution programme. As well as providing support for current safety guarantee systems, this approach also accelerates the resolution of existing issues in the system, while creating momentum for OCB’s continued development in the coming years. Given the potential of Vietnam’s banking sector, not to mention that of the economy, it is an exciting time for the industry and for those that are growing in conjunction with it.

Though relatively early on in its development, Mozambique’s banking sector is on the increase, showing great potential. While account penetration is yet to reach the 20 percent mark and infrastructure is lacking, these deficiencies mean that there are huge opportunities for a banking sector in the midst of a major transformation.

For a low income population with little experience of the formal banking system, corporate social responsibility is a key focus, and the goal moving forwards is to build the beginnings of a competitive banking sector while also benefiting the wider community.

Spearheaded by a handful of notable contributors, the banking sector in Mozambique promises a great deal more in terms of opportunities for the wider population, and could play a key part in driving economic development on a much grander scale. World Finance spoke to Paulo Sousa, CEO of Banco BCI (BCI) about his ambitions for both the bank and for Mozambique’s banking sector as a whole.

To install an agency in a remote area involves overcoming a number of logistical obstacles… such as electricity and water supply through the
access roads

Over the years, what has made many Mozambicans say, ‘BCI is my bank’?
Our biggest difference is that we have specific solutions adapted to all kinds of customers, putting their minds at ease. In 2010, BCI completed a new segmentation process of its customers and recast its offer and care models, adapting products and services to the specific needs of each customer. That year, the first BCI Exclusive centre was opened in Maputo, an entirely new concept in the Mozambican market.

During 2010, six exclusive BCI centres were opened in a number of cities, including Maputo, Matola, Beira and Nampula. The latter was the first city in the country to receive this kind of innovation, brought together with a universal agency, a BCI corporate centre – which is intended for larger companies – an exclusive BCI centre and a private space BCI, used for private banking.

At the moment they are defined by four main operating segments: BCI private to private high yields; BCI exclusive to private customers and medium enterprises, BCI corporate to large enterprises; and BCI universal for all remaining costumers and small enterprises. With regular product launches and commercial promotion campaigns, there is constant innovation in the approach to the segment, and the different payment methods available. Examples include: Tako, BCI Negócios, BCI Negócios Mulher Empreendedora, Crediviagem LAM, Petromoc, Galp, Tropigalia e EU – the last one for university students. We are also the only bank in the country that has a monthly newsletter written for customers of each segment. We give account of our campaigns, services and products. For social media we have a team that responds quickly to the questions posed to us. Therefore, our clients feel that we speak directly with them and for them. It is here that we are different from all other banks.

The country’s financial institution coverage is still seen as very low. What can we expect from BCI?
BCI will continue to invest in Mozambique’s bankarisation. In this area there is still a lot to do. Despite the enormous effort that has been made in recent years, the percentage of a banked population in Mozambique is lower than 20 percent.

The country is quite large with difficult access areas. Responding to the appeal launched eight years ago by the Bank of Mozambique, BCI is the bank that has the largest stake in the country’s rural areas. In 2014 we opened 34 branches. This year we expect to open about 25 new business units. This is a huge effort as to install an agency in a remote area involves overcoming a number of logistical obstacles, from basic infrastructure deficit – such as electricity and water supply through the access roads – to essential communications. Nothing is easy; so most banks do not operate in these difficult to access areas, since the returns are not immediate. But BCI has invested in these areas with successful results.

Recent years have been challenging for the Mozambican banking sector, but 2014 was good for BCI. Why was that?
BCI had great growth last year, and in many indices we were in the lead. In others areas, we are almost there. Where the commercial network expansion is concerned, we opened 35 branches in 2014, an unprecedented growth in the history of BCI and the Mozambican banking industry.

The peaks were reached in September and December of last year, when we opened 11 business units. In this chapter of expansion, we recorded an increase of 26 percent, which allowed us to get through the year with the largest commercial network in the country, totalling 168 business units. Within the scope of expansion, we noted a 42 percent increase in ATM usage. We installed 141 units in 2014, totalling 477. POS grew 34 percent, from 4,694 in 2013 to 6,303 in 2014 – numbers that allow us to lead in African electronic banking. The campaign ‘The best comes here’, was designed to raise and retain customers, and was a huge success.

The numbers speak for themselves. We reached the end of 2014 with the goal of one million customers to overcome. We have gone from 776,000 customers at the end of 2013 to 1.036 million at the end of 2014. This means that 260,000 Mozambicans have chosen BCI as their bank last year, a growth of 34 percent.

How has BCI been a key pillar for those most in need, particularly within the Mozambican population?
The importance that BCI attributed to the social dimension of its role is its commitment to contribute actively to the economic and social development of Mozambique in a socially responsible and sustainable way. Examples of this can be seen in the initiatives taken last January, when the bank donated two million meticais for the flood victims that devastated the north of the country earlier this year. BCI was chosen as the bank of support for this mission.

The amounts donated by BCI resulted in revenues from a social responsibility fund that is fuelled by the use of the debit card ‘daki’. At the public launch of this payment method, BCI introduced an innovative concept of distinct valences, such as whenever it is used to pay for purchases by its clients, it enables the bank to strengthen its support to many institutions’ social solidarity, depending on the amount transferred at no cost to the cardholder. The selection of beneficiary institutions by the resulting social responsibility fund of the card using the daki is performed periodically and disclosed to the public through the BCI website and the media, in order to promote its use.

Our greatest pride in the aspect of social responsibility however, was the creation of the Mediatecas network – hugely successful when looking to the public that it serves. The Mediateca consists of different elements: general reading featuring books, newspapers and magazines of general information in Portuguese and English, and an audio-visual space where clients can be consulted through compact discs and educational films. One film is specialised in technical information on finance, management, economics, law, IT, statistics and reference books.

Another is focused on querying external databases and internet access. Currently, BCI has three Mediatecas: Maputo, Beira and Nampula. Activity indicators of the Mediatecas Network leave no doubt of the impact that it raises in communities. By December 2014, the Mediateca of Maputo received more than 640,000 people, Beira received more than 290,000 and Nampula had 13,000.

What is your main goal for 2015?
Part of BCI’s objective is to become the leader of Mozambique’s banking sector, but this is not an obsession. The quality of the customer service provided will be decisive in getting the lead. We have reached this position in some indicators, the last being the branch network, but if we do quality work as we have so far been active I have no doubt that soon we will be the preferred bank for most Mozambicans.

What message would you give a potential investor in Mozambique?
Anyone who does not know the market or have local support should take into account other aspects that could make things simpler, like a Mozambican partner with knowhow in the business, and respect the laws and culture of the country.

We do not intend to exactly duplicate previous experiments carried out elsewhere because there are certain businesses that are adapted to specific countries and not others. If these aspects were taken into consideration, business success would be more assured, and for financial support, they can always rely on BCI.

As a consequence of recession and financial crisis, the Asian economy has been slow over the last few years, but thanks to the gradual recovery of global and local markets since the end of 2012, along with the implementation of favourable policies by the Vietnamese Government, Vietnam has seen its economy improve significantly.

For starters, the country is well positioned to increase its exports even further (see Fig. 1), which are driven by technology and electronics, as well as other major exports including oil and gas, shoes, seafood and agricultural products, which demonstrates how deep their integration into the global and regional value chains have become.

Vietnam managed to maintain steady GDP growth of around six percent in 2014, which is considerably better than the global average, according to the World Bank (see Fig. 2).

What’s more, investment continues to flow into the country despite challenges earlier in the year, from both new and long-term investors, as Vietnam emerges as a high-end manufacturing hub. Samsung, for example, is about to build a $1bn factory in Vietnam, its third plant in the country to date, with a fourth in Ho Chi Minh City already being considered.

Banking industry reforms continue to be implemented under the close guidance of the State Bank of Vietnam (SBV), emphasising on the merging direction of local banks.

Several deals are already underway as part of an emerging plan, which is expected to bring about a significant change in the Vietnamese banking sector – something that will help make the market healthier and more attractive to outside investment

Vietnam also benefits from having a young, well-educated and eager-to-learn population, which is another must-have for foreign investors. However, having investment in training these talent resources, and making sure the investments go into the right talents continue to be the key challenges that investor’s should take into account in their strategy of developing business in the market.

It is clear that Vietnam has been set on the right directions for growth. To find out how the country is planning to capitalise on its recent successes World Finance spoke with Dang Tuyet Dung, Deputy CEO of one of the country’s leading financial institutions, Maritime Bank.

What advantages does the Vietnamese market have that makes it so attractive for foreign investors?
By the end of May 2015, there were more than 16,300 active foreign direct investment (FDI) projects in Vietnam that have collectively pulled in a total of $238bn. In 2013, FDI inflow exceeded $22bn, an increase of more than 35 percent from 2012. The figures indicate that Vietnam has become a destination of choice for foreign investors.

Vietnam was influenced by the global and Asian market crisis, which led to slow economic growth and high pressure on non-performing loans (NPLs) in the banking industry. However, the Vietnamese government has implemented aggressive and consistent policies to stabilise the economy, manage inflation, and reduce NPLs. One illustrative example of such effort is the forming the Vietnam Asset Management Company (VAMC), designated to help transform the banking industry, which in turn, provides the necessary market stabilisation.

Vietnam also has a youthful population, with 60 percent of it in the working age. The country is located right at the heart of East Asia, a favourable geographical location – home to a number of large and vibrant economies. Being a member of the World Trade Organisation, and a party to multiple frameworks of international economic integration, including free trade agreements with partners both within and outside the region, Vietnam clearly becomes an attractive place for foreign investors. Furthermore, the country is part of the Trans-Pacific Partnership (TPP) negotiations.

To advance socio-economic development, Vietnam will continue to attract and efficiently use FDI inflows, focusing on FDI projects that use advanced and environmentally friendly technologies, and use natural resources in a sustainable way. The priority will also be given to projects with competitive products that could be part of the global production network and value chain. To achieve these targets, the Vietnamese Government has committed to create a fair and attractive business environment for foreign investors, and is constantly improving its legal framework and institutions related to business and investment. The government has been working hard on three ‘strategic breakthroughs’: putting in place market economy institutions and a legal framework; building an advanced and integrated infrastructure, particularly transport; and developing a quality workforce. These should all be completed by 2020 – confirmed by Prime Minister Nguyen Tan Dung.

What other developments are currently underway in the country?
Vietnam’s economy further maintains its recovery trend in 2015 as the macroeconomic stabilisation and global economic developments are providing strong pillars for the growth. The growth target of 6.2 percent set by the government in 2015 is viable. The potential for growth in Vietnam is still there: the World Bank forecasts Vietnam’s economy growth rate in 2015 and the next two years will be on the upward trend. Vietnam’s GDP growth is forecast at six percent in 2015, which will be gradually increasing to 6.5 percent in 2017 thanks to positive developments in the manufacturing, export and foreign investment sectors.

However, there are also a number of problems and challenges to this acceleration in the upcoming period of time. Service and agricultural sectors have been struggling and slowing down in the past two years; the industrial sector may no longer sustain its rapid growth; industrial growth and trade balance are driven by FDI sector; the restructuring process for state-owned enterprises (SOEs) remains challenging and requires more consistency and speed-up; trade deficit, and budget overspending has yet to improve; concerns about public debt are looming; geopolitical tensions pose an imminent risk, etc.

What role will Vietnam’s relationship with the TPP and other trade agreements play in its economic development?
The relationship between Vietnam and regional free trade agreements plays an important role in the economic development of the country. Recently, Vietnam has been getting increasingly engaged in both regional and global trade agreements. The engagement creates both opportunities and challenges for economic growth.

Export markets are expanding and Vietnamese products afford a competitive advantage. Industries such as textiles and garment, leather and footwear, seafood, and more, have a chance to thrive. The domestic market also benefits from the importation of goods and services at competitive prices and consumer support.

There is pressure to reform many sectors due to tough competition from abroad as tariffs fall and technical barriers are applied. Domestic industries such as steel manufacturing, insurance, banking and finance, retail and consumer goods are under high pressure. The requirement for SOEs reform is more urgent than ever. In the face of opportunities and challenges posed by the conclusion of free-trade agreements, the role of the relationship between Vietnam and other partners in the negotiation of such agreements has become increasingly important. Such a role has been demonstrated by the attainment of terms, which help mitigate challenges while still managing to utilise opportunities from these agreements.

As the Vietnamese economy strengthens, what are the implications for the country’s banking sector?
The banking sector and financial market in general have benefitted from the economic recovery. Only when economic growth is stable can the banking sector have better growth prospects. Given the fact that net interest income makes up 70 percent of the profit composition, flourished credit can create an opportunity for banking sector to improve its profit. Besides, banking services will further grow in the era of the internet-connected and hi-tech economy. Rapid credit growth will help improve NPL ratios, and safety for the banking system. Amid the challenges and opportunities from the integration, the banking sector must be persistent with the restructuring process and improvement of the system health in order to grasp new opportunities.

However, to ensure sustainable development, lending control must be tightened; required ratios must be better adhered to for avoidance of adverse impacts on the verge of a real estate bubble.

How does Maritime Bank support Vietnam’s economic advancement?
Maritime Bank has a sound and sustainable development strategy. In recent years, the bank has been restructuring itself aggressively. The majority of NPLs have been resolved given the focus on having dedicated asset management company to handle NPL, the proactive effort of selling debts to VAMC and the strong guidance towards credit policy and collection structure of new loans book.

Credit growth has been under control and mobilisation carried out with caution. A modern banking platform has been built and various products have been offered – including online products, state budget collection, online payment, retail banking products and corporate banking products. Finally, MDB – the Maritime bank merger – is under way to help strengthen the network advantage and bank’s capitlisation.