HSBC and Standard Chartered are ready to expand rapidly in Vietnam after gaining permission yesterday to incorporate their businesses locally. The move will allow the UK banks to compete equally with domestic lenders in one of Asia's fastest-growing markets.
The Vietnamese Prime Minister, Nguyen Tan Dung, announced the licences at a seminar in London. The change will allow the banks to do more business with local people and free them to open more branches.
HSBC said it planned to increase its branch network in the country from two to 12 this year. As well as its own branches in Hanoi and Ho Chi Minh City, the bank has a 15 per cent stake in Techcombank, a local lender, and Bao Viet, an insurer.
Standard Chartered wants to increase its number of branches from two to between 20 and 30 within about three years. It also bought an 8.6 per cent stake in Vietnam's Asia Commercial Bank in 2005.
Mervyn Davies, the chairman of Standard Chartered, said: "Vietnam is one of the most exciting markets in the world. With such a huge and young population it is a huge opportunity."
Vietnam has a population of 87 million, 70 per cent of which are under 40. Its economy expanded by 8.5 per cent last year and averaged a 7.5 per cent growth in the previous decade. Bank lending grew by 37 per cent last year.
Mr Dung warned that Vietnam's growth could be threatened by rising inflation and a slow-down in the US, which accounts for 20 per cent of the country's exports.
"New difficulties are arising. Inflation in 2007 was 12.6 per cent and this is a rather high rate... If the US economy continues to slow down, purchasing power will decrease as a result."
Mr Dung said Britain was the 14th-biggest inward investor in Vietnam and that he wanted to attract more UK companies there. He tried to dispel concerns about the one-party state's commitment to free markets and said the issue was 20 years out of date.
Vo Hong Phuc, the Minister of Planning and Development, said he would like more UK investment in banking, oil and gas, agro-processing and insurance. Prudential is the biggest international insurer in Vietnam and Mr Dung was speaking at a seminar at Prudential's offices.
Vietnam joined the World Trade Organisation last year and promised to open up its financial markets then.