山形大学大学院社会文化システム研究科紀要

第 8 号（2011）01−13

What drives strategic foreign bank investments in Vietnam?
Masaki Yamaguchi（Department of Law, Economics and Public Policy, Faculty of Literature and Social Sciences）

growth that Vietnam may encounter in the near

Abstract

future, this paper focuses on foreign banksʼ

This paper examines foreign banksʼ market
entry motives into Vietnam and gives evidence

market entry and the impact of their actions on
the Vietnam economy.
The existing frameworks used to examine

showing whether the efficiency hypothesis or the
explains

market entry do not correspond well withstrategic investments by foreign banks. The

Vietnamʼs situation. Empirical studies of multina-

efficiency hypothesis suggests that efficienttionalforeign banks target inefficient local banks toframeworks to investigate market entry. The firsttransfer their superior technologies and manage-

framework examines whether the follow-the-cli-

ment practices. On the other hand, the market

ent hypothesis or lead-the-client hypothesis

power hypothesis explains that foreign banks

better explains market entry incentives. The

target large local banks irrespective of theirsecond framework attempts to determine criticaldegree of efficiency. The framework in this paper

factors for the location choice of multinational

differs from previous studies because we compare

banks. The aim of these frameworks analyzes

financial data of local banks. Results indicate thatmultinational service banking1. However, because

the market power hypothesis better explains

multinational service banking does not satisfac-

foreign banksʼ behavior. As empirical studies

torily explain foreign bank motives, this study

regarding foreign banksʼ entry-mode decisions

does not use these traditional frameworks.

marketpower

hypothesis

better

banks

have

used

two

traditional

are scarce, this paper presents original evidence

We examine whether the efficiency hypoth-regarding foreign banksʼ motives and strategies

esis or the market power hypothesis applies to

into local markets.

Vietnamʼs situation. The efficiency hypothesis
states that efficient foreign banks will target

1. Introductionthinefficient local banks in Vietnam to transfer theirmember of thesuperior technologies and management practices.

World Trade Organization (WTO) in January

On the other hand, under the market power

2007 after approximately 20 years of the Doi Moi

hypothesis, we expect foreign banks to target

policy reform. The entry into the WTO forced

large local banks irrespective of their degree ofVietnam to open its banking sector to foreign

efficiency. Effects of foreign bank investments

banks. Commitments imposed by the entry into

depend on the bankʼs motivation. Since increasing

the WTO cover trade in goods and services.

efficiency in banks by foreign investments be-

Vietnam became the 150

Although only a brief period has elapsed since2007, the number of foreign banks entering
Vietnam is striking. Considering the potential

1

Grubel (1977) presents three classifications on multinational banking (i.e., multinational service banking, multinational retail banking, and multinational wholesale banking).

― 1 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

nefits the entire banking sector, the effect ofentry for multinational banks. We will describe

investments is exerted is a concern for the

motivations both in the context of the Vietnam

authorities.

economy and from the points of discussions in

We will now establish two objectives forprevious studies. Section 5 analyzes investments

analysis. First, we will clarify the current market

of foreign banks by using statistical methods. This

entry trends of foreign banks in recent years. The

investigation will clarify incentives of foreign

Vietnam banking sector has changed dramaticallybanks. Furthermore, we will consider the results

because of successive reforms. The economicof multinational retail banking. Finally, we

scene of Vietnamʼs past does not remotely

summarize the results of our investigation andresemble the current situation. Here, we will

explain the meaning of the results for future

depict the banking sectorʼs industry structure bystudies of multinational banking.

identifying precise moments of foreign banksʼ

2. Overview of the banking system

entry in chronological changes after the 2007
accession into the WTO.

2.1 Financial deepening

Next, we will examine the motivation for

Measuring a degree of financial deepening

market entry by comparing local banks that

demonstrates a state of development for a

foreign banks have invested in with local banks

financial sector. Financial deepening is a concept

have been neglected, and attempt to determinethat captures the development of the financial

any significant differences between both groups.

intermediary. This concept is often measured bySpecifically, we will statistically investigate themoney stocks, specifically M2/GDP. M2 is com-difference of average values regarding hypoth-

posed of cash, deposit currency, and quasi

eses by using the financial data of local banks. On

currency. Increased M2 indicates that bankthe basis of the results gained from these

deposits are a credible means of savings. It also

statistical investigations, we will search for a

indicates that the banking sector mobilizes scarcepattern of market entry in multinational retaildomestic financial assets. Mobilized funds bybanking. This study corresponds to groundwork

financial intermediary functions are allocated tofor evaluating upper-limit regulations on invest-

projects like capital investments, thus contribut-

ment in local banks by foreign banks.

ing to further economic growth.

The remainder of this paper is organized as

Table 1 shows an example of financial

follows. Section 2 depicts the structure of the

deepening. The ratio of M2/GDP was around 20%

banking sector that has been formed through thein the 1990s. This ratio is smaller than those ofrecent reform process. Section 3 describes inother Southeast Asian countries because thedetail the entry of foreign banks after the WTO

credibility of the Vietnamese dong was low andaccession. Investments in local banks and estab-

the financial system in rural areas was unde-lishment of local branches of foreign banks standveloped. Some studies report that households

out among entry modes. Describing how respec-

preferred real assets as a means of savings

tive foreign banks entered the Vietnam market

because real assets seemed safe and secure. For

demonstrates an overview of the market entry.

example, households with higher income were

Section 4 presents motivation factors of market

inclined to invest in gold, whereas households― 2 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

Table 1: Changes of M2/GDP（Unit: ％）Table 2: Banking sector in Vietnam

1995 2000 2003 2005 2007
Vietnam
19.8
44.6
61.6
77.3 109.6
Malaysia
84.7
98.9 128.0 121.9 122.2
Thailand79.1 105.4 115.5 107.7
97.6
Indonesia
48.6
53.9
47.5
43.4
41.7
56.7
52.6
54.2
Philippines
51.8
61.6
China
103.8 152.2 162.2 158.3 163.6
Source: Authorʼs calculation based on International
Financial Statistics, IMF

State Owned
Commercial Bank

with lower income held not only gold but also

Policy Bank

rough rice and milled rice.
Financial deepening accelerated rapidly after
2000, and by 2007, the M2 stock exceeded theGDP. A Comparison of neighboring countries
suggests that Vietnam will rise above Thailand
and come close to Malaysia in terms of financial

Vietnam Bank for Industry
and Trade (Vietinbank)Vietnam Bank for Agricultural & Rural Development
Bank for Investment & DevelopmentofVietnam(BIDV)
Bank for Foreign Trade ofVietnam (Vietcombank)
Mekong Delta Housing Development Bank (MHB)
Vietnam Bank For Social Policies
Vietnam Development Bank

Joint-Stock37
Commercial Bank
Joint-Venture Bank
5
Foreign Banksʼ Branch
33
Peoplesʼ Credit Coop926
erative
Source: State Bank of Vietnam, website

deepening. It is not the increase in cash holding
but the sharp rise in bank deposits that leads tosystem indicates potential growth in the future. In

financial deepening. This is because of efforts tothis sense, Vietnam is an attractive market forstabilize the banking system and high-incomebanking businesses.

growth.
Nonetheless, the banking system in rural

2.2 Competition in the banking sector

areas remains underdeveloped. The evidence is

We will now overview the structure of thethat the ratio of bank accounts is approximately

banking sector from the micro perspective. Table

less than 10% of the population. This figure is

2 represents various Vietnam banks. State-owned

miniscule because people in rural areas do notbanks consist of five state-owned commercial

clearly understand the role of banking and theybanks and two policy banks. Private banks arehave a high level of mistrust in banks. This

classified into three categories. There are 37

mistrust originated because Vietnam experienced

joint-stock commercial banks, 5 joint venturea chain bankruptcy of credit cooperatives in thebanks, and 33 branches of foreign banks. In

1990saddition, five foreign banks established locallybecause

of

a

lack

of

supervisingframeworks2.

incorporated based on licenses from the authority

It takes time for a banking system to prevail.

after 2008.
Oligopolistic competition characterizes theIn other words, low utilization of the banking
2

Financial liberalization in the 1990s provided an environment conducive to indiscriminate establishment. The
number of credit cooperatives amounted to over 300.
Vietnam experienced successive failures of credit cooperatives due to the mismanagement of assets and liabilities.
More specifically, credit cooperatives received deposits
with a monthly interest rate of 15% while they could not
find borrowers who could pay comparable interest rates
for the deposit.

banking sector. State-owned commercial banks
account for 70% of outstanding lendings. Above
all, the market share of loans to state owned
enterprises reaches 90%. The degree of competition in the banking sector is low because
state-owned commercial banks maintain an― 3 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

and credit cards mainly in the southern region of

overwhelming market share.
Meanwhile, joint-stock commercial banks

Vietnam. In addition, Vietcombank, which is ahave increased their lending share in recent

state-owned commercial bank expands retailyears. In 2007, the market share of joint-stockbusinesses in a dynamic way. This bank had ancommercial banks was 17.6% in Hanoi, but it was

overwhelming share of lending to healthy

38% in Ho Chi Minh. Major borrowers fromstate-owned enterprises, specifically export-or-

joint-stock commercial banks are small andiented firms. Thus, it is considered that Vietcom-

medium enterprises (SMEs). Recent rapid econo-bank adapted to orient wholesale banking; howev-

mic growth has encouraged a sudden rise of such

er, this bank quickly entered the market withenterprises. The growth of SMEs seems to havecredit cards. Furthermore, it conducts multip-

broadened the customer base and the market

ronged strategies of retail businesses by holding

share of joint-stock commercial banks. However,security companies, asset management com-state-owned commercial banks, of which the main

panies, and insurance companies.

customers were state-owned enterprises, have

3. Entry of foreign banks

expanded their customer base to private enterprises. Loan outstanding to private enterprises

3.1 Strategic investments to local banks

has already exceeded that to state-owned enter-

The financial reform of Vietnam entered aprises. The competition for customers has intensi-

new stage with the accession to the WTO in

fied and the degree of competition has increased.

January 2007. This accession requires Vietnam toCategorizing joint-stock commercial banks

open its banking sector to the international

allows us to overview the structure of the private

market within seven years in accordance withbanking sector. IFC (2008) classifies joint-stock

mandatory principles of the General Agreement

commercial banks into three categories. The firston Trade in Services (GATS). The basic princi-

category is composed of the top five banks,

ples of GATS require a commitment to market

namely, Techcombank, Sacombank, Vietnam

opening, a commitment that promises market

International Bank, Asia Commercial Bank, andentry of foreign banks. In addition, Decision

East Asia Commercial Bank. The banks of theNo.112/2006 of the Prime Minister on the strategy

second group do not compare with those of theto develop Vietnamese banking sector up to 2010

first group, but these 19 banks do establish

and towards 2020 was officially announced priormarket positioning. This group includes Hanoi

to the accession to the WTO. This plan aims at the

Building Commercial Bank, Viet A Commercial

liberalization of market entry and international

Bank, and others. The third group consists ofstandards of financial supervision.

small banks that changed their business category

There are various modes of entry for foreignfrom rural joint-stock commercial banks to city

banks. The first one is a resident office. The main

joint-stock commercial banks.

operations of a resident office are collections of

A high level of interest in retail banking

local information and support of counterparty

business attracts attention as a business strategy.

companies in a host country. The establishment ofFor example, Asia Commercial Bank sets out

resident offices is a preliminary stage prior to theretail businesses such as car loans, mortgage loans

opening of branches. As of 2009, there are 54― 4 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

Table 3: List of investments
Year Invested Banks
Strategic Investors
2002 Sacom Bank
IFC
2005 Asia Commercial Bank
IFC
Standard Chartered Bank
Asia Commercial Bank
Sacom BankANZ Banking
Techcombank
HSBC
OCBC
2006 VP Bank
2007 Habubank
Deutsche Bank
Techcombank
HSBC
Orient Commercial BankBNP Paribas
Mitsui Sumitomo
2008 Eximbank
Asia Commercial Bank
Standard Chartered Bank
Phuong Nam BankUOB
SeabankSociete Generale
An Binh Commercial Joint Stock Bank Maybank
Techcombank
HSBC
Phuong Nam BankUOB
VP Bank
OCBC
Note: Numbers in parenthesis are accumulated investment ratios.
Source: Thomson ONE Banker, various reports

Nationality
International
International
England
Australia
EnglandSingapore
Germany
EnglandFranceJapan
EnglandSingapore
FranceMalaysia
EnglandSingapore
Singapore

Investment Ratio
10
8
8.56
10
10
10
10
5(15)
10
15
6.16(15)
10
15
15
5(20)
5(15)
5(15)

Table 3 presents a list of investment

foreign bank resident offices in Vietnam.
The next mode of entry is branch establish-transactions. Strategic investors are classified into

ment. Opening branches allows foreign banks to

two types of financial institutions: worldwide

provide financial services such as deposits andfinancial institutions and financial institutions thatloans. Operating resident offices incur costs while

concentrate on the Asian market. Among thebranch operations can raise revenues. However,former, the HSBC group demonstrates active

the customer base of foreign banks tends toentry into Vietnam. At first, HSBC purchased acomprise companies from the home country

10% share of Techcombank in 2005. HSBC thenbecause the authorities restrict the number ofsuccessively increased the investment ratio tobranches allowed by foreign banks.

15% in 2007 and 20% in 2008. Notably, this is the

Accelerated financial reform because of thefirst authorized case of 20% investment. The

WTO accession produced new entry modes, one

relationship between HSBC and Techcombank isof which is the capital subscription of local banks.

not limited to capital ties; HSBC also contributed

Decree No.69 (April 2007) on purchase by$13.5 million for five consecutive years to support

foreign investors of shareholding in Vietnamese

the technical improvement of credit cards andcommercial banks prescribes investment details

consumer loans4.

in local banks. The upper limit of the total
investment ratio by foreign investors is 30% inthis regulation. Of them, a strategic investor caninvest up to 15%. However, the upper limit canincrease up to 20% with the authorization of theState Bank of Vietnam3.

Standard Chartered Bank has strengthened
3

There have been no investments to state-owned
commercial banks so far. According to a media report, theupper limit is only 7% ‒ 10% for state owned commercial
banks (The Banker, January 2009, p.87).
4
HSBC also invested in Bao Viet, which, as of 2007, is thelargest insurance company in Vietnam. Its investment
ratio is 10%.

― 5 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

its involvement in Vietnam with additional

lending to small businesses, medium-sized enter-

investments in Asia Commercial Bank. This

prises, and consumers. Furthermore, VP Bank

investment contains strategic alliances that offer

decided to purchase 1000 ATMs in 2007, expand-technical assistance in the areas of risk manage-ing its business base actively. This implies that VP

ment and retail business. Standard Charteredbank has developed retail banking businessBank and Asia Commercial Bank corporated tomodels.

interconnect ATMs and issue co-branded credit

Among the activities of Japanese banks, thecards in 2009. In addition, European banks, suchinvestment by Sumitomo Mitsui Bank in Exim-as Deutsche Bank and Societe Generale, have notbank is worth noting. This investment is part of aonly invested in local banks but also establishedconveyance of strategic knowledge concerning

partnerships with retail businesses.

consumer loans, credit cards, and risk manage-

The investment in Sacombank by the ANZ

ment. The main activities of overseas investmentgroup has a high profile among the financial

by Japanese banks are purchasing shares of

institutions that conduct business in the Asianfinancial institutions in developed countries. In

market. An increase in the growth of both

fact, Japanese megabank announced investment

businesses is expected by combining the custom-

to ailing financial institutions in the USA ander base of Sacombank and the experience of ANZ.

England to strengthen its securities business.

These banks have already co-founded a joint

Contrary to recent trends, this investment inventure in tke credit card business. In addition,

Vietnam is a very rare transaction targeting retailthe investment of the ANZ group to local banks

business.

has spread all over Asia, (e.g., Panin Bank in

The strategic investment is a reliable method

Indonesia, Metrobank in Philippines, ANZ Royalfor establishing a presence in the Vietnam

Bank in Cambodia and Tianjin City Commercial

market. Many financial institutions have con-Bank in China).

ducted investments during a short period since

Maybank from Malaysia is also actively

accession to the WTO. This paper examines theseinvesting in local banks of emerging market

strategic investments and the motivation ofcountries. In 2008, Maybank purchased a 15%

foreign banks as strategic investors5.

share of MCB Bank, the fourth largest bank inPakistan, and acquired Bank Internasional Indone-

3.2 Overview of motivations

sia. The investment to An Binh Commercial Bank

We now describe the background of active

is considered to be a component of successive

market entries by foreign banks. High potentiality

strategic investments.

of the Vietnam market explains the motivation of

OCBC (Singapore) has strengthened its

foreign banks to enter the market. Evidence of

involvement in the VP Bank with additional

high potentiality is the size of population. Viet-investments. OCBC contributed $7 million for
educational staff training, and it supports thelong-time development of financial techniques byhiring the staff of VP bank as interns. This
investment is based on the potential growth of

5More recently, a new entry mode has emerged: theestablishment of locally incorporated bank by foreignbanks. Five foreign banks―HSBC, Standard Chartered
Bank, ANZ group, Hong Leong Bank and Shin Han
Bank―have already started to open locally incorporated
banks since 2009.

― 6 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

namʼs population , as of 2010, is approximately 85

These banks have expanded the number ofmillion, larger than Thailand (approximately 61

ATMs and Internet banking services to streng-million) and Malaysia (approximately 26 million).

then relations with customers. A strategic allianceFurthermore, the population of Vietnam iswith foreign banks plays a major role in a scene

predicted to exceed 100 million in the half of thethat needs well-established information technolo-

2010s.

gies. In addition, foreign banks have accumulated

Furthermore, demographic structures theexperience and know-how of financial services

population under 30 accounts for 58% of theand products, which are helpful for local banks

national population possess significance for thewhen expanding retail businesses.

banking business. Per capita income exceeded

4. Previous studies$700 in 2007 because of recent economic growth.
This data suggests that the middle class, with

4.1 Studies on Vietnamese banking sector

robust spending intentions, will come to thePrevious studies concerning Vietnamʼs bank-forefront. The consumption trends of the middle

ing sector are quite scarce. However, despite suchclass will progress toward home electric ap-

a poor accumulation of facts, we can find thepliances, cars, and houses. This consumption

following studies. Anwar and Nguyen (2009)

behavior will lead to an increase in the demand forinvestigated the development of the financial

retail financial services such as credit cards andsector from a macro perspective. This study

housing loans.

discusses whether financial development encour-High potential is also backed by the fact thatages economic growth. By regressing the econo-

using banks is not common in rural areas. Less

mic growth of respective provinces on its loan

than 10% of Vietnamʼs population holds a bankoutstanding/GDP, they examine the effect ofaccount. Generally, people conserve wealth infinancial development under the framework of theterms of real assets like gold and hard currency.

endogenous economic growth theory. This empir-

However, future economic growth potential andical study uses samples of 61 provinces from 1997

the increase of banking credibility will increase

to 2006. Results confirm that financial develop-

6

the use of banks in rural areas . As mentioned

ment boosts economic growth.

above, the banking business holds vast potential,

Nguen (2007) is one of the few studies on thedespite the small size of the Vietnamese market.

industrial structure of the banking sector. ThisThus, foreign banks must enter the markets withstudy examines the banking sector from theextended commitments.

efficiency viewpoint. More specifically, the study

Meanwhile, local banks in Vietnam areuses data envelopment analysis to determine

prepared to reap the benefits of foreign banksʼ

efficiency and total factor productivity of respec-

entry. We can observe practical value fromtive banks. An assessment of the financial reform

investments in joint-stock commercial banks. A

in this study is a well-timed analysis because thenumber of joint-stock commercial banks havereform is currently being implemented. Samples

allocated business resources to retail banking.

covered 13 commercial banks from 2001 to 2003,

6

and the results reflect that contributions ofGovernment agencies have started payroll accounts
since 2008. This will encourage the utilization of banks.

technical efficiency improve total factor produc-― 7 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

efficiency hypothesis best explains the motivation

tivity.
We cannot find any quantitative analyses ofof foreign banks.

foreign banksʼ entry into Vietnam, but we know

Traditional

studiesuse

twovalidationthat the entry of foreign banks is a critical issue

methods, one of which is an event study. Thisfor the assessment of financial reform. Aftermethod examines how stock markets respond to

conducting a thorough literature review, wenews of cross-border M&A. If abnormal returns

discovered that such a critical work has not yet

are caused by news reports, then M&A increases

been conducted.

enterprise value and leads to higher efficiency.
However, previous studies that used the event
study cannot adopt the efficiency hypothesis. For

4.2 Motivations of investments
According to Lanine and Vennet (2007), two

example, Cybo-Ottone et al. (2000) and Beitel ethypotheses account for the motivations of foreign

al. (2004) cannot detect abnormal returns caused

banks. The first is the efficiency hypothesis, whichby news reports concerning M&A among Euro-

explains that foreign banks with higher efficiency

pean banks.

target local banks with lower efficiency. The

The other method investigates whether theinvestment by the foreign bank improves themarket entry of foreign banks improves theefficiency of the local bank by transferring

efficiency of local banks. This study detects

detailed business management techniques anddifferences between the efficiency and depend-

financial products to inferior local banks. This

ence on the presence or absence of investments

motivation requires the foreign bank to make a

by foreign banks. This method is often used inlong-term commitment with the local bankstudies on Central and Eastern European Coun-because harvesting the benefits of investment

tries. Grigorian et al. (2006) and Fries et al.

7(2005) report that local banks in which foreign

The second theory is the market powerbanks have invested exhibit relatively higher

hypothesis, according to which, the local bankefficiency; thus supporting the efficiency hypoth-with a higher market share becomes the target of

esis.

requires extended periods .

investment by a foreign bank. Foreign banks do

However, neither of these methods are

not have interest in the efficiency of the local bankapplicable to Vietnam because most of the local

because the aim of its investment is to build

banks in which foreign banks invested are notmarket share. This is a matter of concern for thelisted on the national stock markets. In addition,authorities because entry into the WTO does notmeasuring the effects of foreign banksʼ invest-

necessarily encourage development of the bank-ment is unfit for Vietnamʼs situation because

ing sector.

sufficient time to investigate the effects has not

Previous studies have examined which
hypothesis best explains strategic investments.

elapsed. As a result, the examination of hypotheses requires other research methods.

After reviewing the literature, we can see that the

5. Quantitative analysis

7

All foreign banks seem to have long-term ideals forbusiness in Vietnam. However, ANZ group consults with
Sacombank about readjustment of partnership to pull out
its investment.

5.1 Method and data

― 8 ―The method that was used in this paper

What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

investigates the financial characteristics of local

the consumer price index and taking logarithm.

banks that foreign banks have invested in. Using

These two variables are used for the verification

financial data of local banks, we can contrast theof the market power hypothesis. That is, we takedifference between invested banks and non-in-

this hypothesis if the size of invested banks isvested banks. Detecting significant differences inlarger than that of non-invested banks.

bankʼs financial characteristics, such as profitabil-

The next group consists of three profitability

ity and size, can determine which hypothesis best

variables: return on asset (ROA) , return on

explains the motivation of foreign banks to enter

equity (ROE) , and net interest margin (NIM) .

the market.

Dividing net interest revenues by earning assets

Comparative analysis requires a classification

yields NIM. Variables of the third group measureof samples (i.e., invested banks and non-invested

management efficiency from the aspect of costs.

banks). This section will note how to deal with theThis group includes NIEXP and CI. NIEXP isdata of invested banks. Data beginning one year

obtained from dividing non interest costs by total

before the year when investment occurred areassets. CI is the ratio of total costs to total

classified with the data of invested banks. Datarevenues. A smaller value of these two variablesprior to two years before the year whenindicates better management efficiency. The

investment occurred are classified with the data

variables of the second and the third groups areof non-invested banks. Samples do not include theused for the verification of the efficiency hypoth-data after the investments were initiated. Thisesis. That is, we accept this hypothesis if investedmeans that the data of the year when thebanks demonstrate higher profitability or efficien-

investment occurred are not included. Thiscy than non-invested banks.

method of data collection aims to remove

The last group consists of capital adequacy

unbalanced effects of investment because costs

ratio (CAP) and LTA, which captures lending

are likely to incur by the investments in the year

behavior. The CAP here is different from thatwhen investment occurs. This study applies

defined by the BIS regulation. This CAP signifies

classification of data according to Lanine et al.

the figure that divides capital stock by total(2007).

assets, whereas LTA is the ratio of loans to total

There are variables that compare invested

assets. Using these variables, we can compare thebanks and non-invested banks. The first variable

difference between invested banks and non-in-measures the size of banks (SIZE). Normalizing

vested banks. Table 4 shows the list of variables.

the total assets by the consumer price index andHere, we will test the mean differences fortaking natural logarithm of this figure yields

the above-mentioned variables between invested

SIZE. The increase of the consumer price index inbanks and non-invested banks using Wilcoxon

Vietnam is as high as 7% ‒ 8% during the sample

rank-sum test. This method is popular because of

period. Nominal values without modification are

its efficiency for testing the difference of means

not applicable for this analysis because we use

between two independent groups. Using a t-test

pooled data. Therefore, normalization is con-assumes normal distribution among samples. If

ducted in SIZE. The other variable is LYOKIN.

this assumption is not satisfied, a non-parametricThis variable is also modified by normalization oftest is applicable for the examination. Most of the― 9 ―What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

provide strong evidence to support the efficiency

Table 4: List of variables
Definition

Variables
Bank size

hypothesis. The means of invested banks arebigger than those of non-invested banks in terms

SIZE LN(total asset/consumer price index)

of profit variables such as ROA and ROE;

LYOKIN LN(deposit/consumer price index)
Profitability
ROA net profit after tax/total asset
ROE net profit tax/equity
NIM net interest revenues/earning assets
Cost efficiency
NIFXP non-interest costs/total asset
CI total costs/total revenues
Others
CAP equity/total asset
LTA net loans/total asset

however, these differences are not statisticallysignificant. We cannot observe the behavior of
foreign banks that invest in local banks with lower
profitability and improve efficiency. Comparison
of NIEXP demonstrates that the means ofinvested banks is relatively low. In other words,
local joint-commercial banks that foreign banks
have invested in take advantage of cost efficiency
compared to non-invested banks. This advantage

variables in this study do not satisfy normalityof invested banks may attribute to merit of scale.

because of the small number of samples; hence,

These results are incompatible with the efficiency

we chose the Wilcoxon rank-sum test for

hypothesis.

comparisons8.

Our test results fully support the market
power hypothesis by demonstrating that foreignbanks choose large local banks with higher

5.2 Results and discussion
Table 5 shows the comparison results. We

efficiency as targets of investments. Such be-observe significant differences in variables re-havior reveals foreign banksʼ intentions to acquiregarding the size of banks. This means thatan advantage in Vietnam by investing in qualified

invested banks are bigger than non-invested

local banks. In Central and Eastern European

banks in terms of SIZE and LYOKIN. This result

countries, we can observe similar investment

indicates

large

patterns by foreign banks, where the foreign

joint-stock commercial banks for market entry.

banks have purchased local banks that maintain a

The size of banks is also a proxy variable forlarge market share. The pattern of market entry

branch networks. Bigger banks have a larger

by investments in prime local banks may benumber of outlets and sales networks throughout

considered general behavior for foreign banks.

thatforeignbanks

targetthe nation. This suggests that foreign banks

However, it is hasty to reject the efficiency

intend to commit to long-term retail banking withhypothesis at this time. It takes time to assess

local banks that have a well-developed branchwhether strategic alliances with foreign banks

network. This comparison offers supporting

improve the efficiency of local banks because

evidence for the market power hypothesis.

most investments have been conducted within the

While the market power hypothesis has

past three years. The examination of efficiency

strong evidence, our test comparisons do not

improvement requires more financial data. Au-

8thorities may be concerned with the effect ofAnother candidate for this examination is the logit
model, which can identify features of invested banks.
However, a highly accurate estimation is impossible
because of an adequate sample size.

foreign banksʼ investments on efficiency. If foreignbanksʼ investments as minority shareholders do― 10 ―

What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

Table 5: Result of comparisons
Non-Invested Banks
Invetsed Banks
s.d.
min
max
mean
s.d.
min
mean
1.09
1.69
4.68
3.89
5.44
3.95
0.49
SIZE**
4.05
0.62
3.24
5.05
3.36
1.18
0.51
LYOKIN*
1.09
2.25
1.49
0.48
0.22
ROA
1.74
0.35
ROE
18.28
8.53
8.82
33.77
14.23
4.85
3.09
NIM
3.20
2.88
3.25
3.21
0.19
1.94
0.13
NIEXP*
1.58
0.36
0.79
1.95
1.91
0.51
0.40
CI
35.92
18.82
49.30
39.86
6.70
26.69
9.50
CAP
11.81
4.92
4.58
18.67
11.90
7.23
4.76
LTA
49.70
39.60
63.93
56.82
16.40
22.00
8.01
Note: * and ** denote significance at the 5％ and 1％ level respectively.
Variables

max
7.14
6.76
3.07
26.13
3.25
3.43
52.56
46.26
82.19

Wilcoxon
p-value
0.01
0.03
0.07
0.33
0.43
0.03
0.28
0.62
0.15

not lead to efficiency improvement, this may force

sented a comprehensive vision of market entry byauthorities to consider an adjustment of regula-using the Thomson ONE Banker database andtions concerning market entry. Examination on

local English newspapers. Furthermore, weeffect of efficiency is the critical issue to beanalyzed the current structure of the banking

observed not only in the context of the study on

sector. State-owned banks have a large share in

multinational banks but also from the standpoint

loan markets, indicating that oligopolistic competi-

of financial supervision.

tion characterizes the banking sector. Meanwhile,
joint-stock commercial banks and foreign banks

6. Conclusion

have increased their share rapidly by aggressive

This paper investigated the motives ofbusiness

expansion.

Financialliberalization

foreign banks to enter countries with emerging

appears to have an effect on keener competition.

markets. Foreign bank motives were analyzed bySecond, we investigated the motive of market

the examining on location choice and follow-the-entry by the comparative analysis. The question

client hypotheses. Various frameworks wereis whether the efficiency hypothesis or the market

required because foreign banks have entered

power hypothesis better explains foreign banksʼ

emerging market countries mainly to conduct

investments. The samples are classified into

multinational retail banking. Hence, this study

invested banks and non-invested banks. Using

used the analytic framework comprised of thethis classification, we can examine differences inmarket power hypothesis and the efficiency

financial data related to hypotheses between bothhypothesis.

groups. Results support the market power

Since the accession to the WTO in 2007,

hypothesis. Invested banks are of relatively larger

Vietnam has opened its banking sector. Market

size. Cost efficiency of non-invested banks isentry by the means of strategic investment insignificantly smaller than invested banks. This

local banks provides an excellent opportunity toresult is contrary to the expectation of thestudy motives of foreign market entry.

efficiency hypothesis.

The points of this paper are as follows. First,

The choice of investment by foreign banks isthis paper analyzed the detailed situation of

directly related to decisions related to multina-

foreign banksʼ market entry. This study pre-tional retail banking. Large local banks are― 11 ―

What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

preferred because the retail business requires abanks in transition: Evidence from 289 banksstrong sales network to access customers easily.

in 15 post-communist countries,” Journal of

We can observe similar trends of foreign banksʼ

Banking and Finance, Vol.29, pp.55-81

market entry in Central and Eastern European

Grigorian, D. A. and Manole, V. (2006) “Determi-

countries. Hence, results in this paper suggest thenants of commercial bank performance ingenerality of such trends of foreign banksʼtransition: An application of data envelop-

investments.

ment analysis,” Comparative Economic Studies, 48, 497-522

The question of this paper belongs to studies
of multinational banks, which present a theoretic-

Grubel, H. G. (1977) “A theory of multinational

al framework to explain the emergence ofbanking,”

multinational banks. The most common explana-

Quarterly Review, No.123, pp.349-363

tion, the eclectic paradigm by Dunning (1979) ,Hoang, T. L. (2006) “An update on non-perform-

consists of three factors; namely, ownershiping loans resolution and banking reform inadvantage, internalization advantage and location

Vietnam,” a report presented in the Fifthadvantage. Among these factors, this paper is

Forum for Asian Insolvency Reform, 27-28

most concerned with internalization advantage. In

April 2006, Beijing, China

this sense, this paper presents new realization

Banca

NazionaledelLavoroIFC (2008) Vietnam: Financial sector diagnostic

internalization

2008, <http: //www.ifc.org/ifcext/mekongp-

advantage and some contributions for the studies

sdf.nsf/AttachmentsByTitle/Financial-Diag-of multinational banks.

nostic-VN/$FILE/Financial-Diagnostic-VN.

concerningmaterializationofpdf>（last access date, July 22, 2009）

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Anwar, S. and Nguyen, L.P. (2009) “Financial

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September 9, 2008

What drives strategic foreign bank investments in Vietnam?（Masaki Yamaguchi）

What drives strategic foreign bank investments in Vietnam?
山口昌樹（人文学部法経政策学科）

本稿の分析対象は多国籍銀行の新興国への参入行動である。アジア地域においては近年になって多国籍銀行の進出が顕著であり注目を集めているが，本稿では 2007 年に WTO に加盟して銀行部門の対外開放を進めるベトナムを取り上げた。2007 年からわずかな期間しか経過していないが多くの外国銀行が地場銀行への出資を実行しており，ベトナムは多国籍銀行研究の対象として注目を浴びている。
参入行動の実証に用いられてきた枠組みは主に 2 つある。1 つ目は，進出動機を特定するために追随仮説と主導仮説の説明力を検証するというやり方である。2 つ目は，進出先をどこにするかという立地選択を説明する要因を特定するというやり方である。本稿では，近年の多国籍銀行の動向として進出先における現地企業や個人を取引対象とするローカルビジネスの展開が顕著であることに注目して別の枠組みを採用する。それは市場支配仮説と効率性仮説のいずれが有力かを検証する。現地でのシェア拡大を目的に大規模行に出資するという説明が市場支配仮説であり，効率性仮説は出資の目的が経営効率の劣った地場銀行へ技術移転して企業価値を向上させることにあると説明する。
本稿でまず明らかにしたのは WTO 以後の外国銀行の参入状況である。情報源の乏しいベトナムについて外国銀行を包括的に提示する基礎作業も行われていない研究状況にあっては本作業は地道ながらも貢献は大きいと考えられる。また，国有銀行による寡占的な競争構造にありながら，商業銀行や外国銀行によって競争度が高まりつつあるという銀行部門の競争構造についても俯瞰できた。
第二に，参入動機を説明する仮説を比較分析によって検証した。結果は市場支配仮説を支持するものであった。多国籍銀行の出資対象となった地場銀行は企業規模が相対的に大きいことが確認された。また，費用効率については被出資行の方が数値が小さく効率性仮説の予想とは逆の結果であった。多国籍銀行による出資対象の選択には多国籍リテール業が関係している。リテール展開では顧客に対する販売網の構築が前提であるため規模の大きな地場銀行が選好されたと推察できる。
こうしたベトナムを対象とした実証分析は筆者の知る限り試みられていない。そうした意味で，アジアを対象とする多国籍銀行研究の蓄積に本稿が貢献するものと評価できよう。

― 13 ―