Is Vietnam ready for private banking?

VPBank Securities is developing a private banking platform it intends to launch next year, says Nguyen Lam Dung, the firm's Hanoi-based chief executive.

VPBank Securities is an arm of Vietnam Prosperity Joint-Stock Commercial Bank, better known as VPBank. It is a privately owned financial group known for focusing on lending to small enterprises and consumer finance.

“We will combine our commercial bank with our securities service,” Dung said. “That’s the first phase.”

Although foreign banks such as ANZ and HSBC have services targeting affluent people in Vietnam, they do not operate onshore private banks. Instead they refer clients to their offshore private banking counterparts, where minimum account sizes typically begin at $1 million.

Dung says VPBank wants to create Vietnam’s first purely onshore service catering to the high-net-worth segment. It will have a lower threshold than an offshore private bank, starting with a minimum of $500,000 in financial assets. Originating on the consumer bank side of the VPBank group, it will begin by offering basic products for local investors.

Gregory Nathan, an American based in Ho Chi Minh City (HCMC), is leading the initiative. He moved to Vietnam in 2011 to run HSBC’s 'Premier Proposition' service for wealthy customers. He has 30 years of experience in wealth management, including working in the US at Wells Fargo, Bank of America and UBS.

Will it work?
AsianInvestor could not verify that no other local finance groups are also combining their bank and securities offerings for rich customers, but fund managers and rival brokers on the ground said they had not heard of other initiatives.

Fund managers with onshore products will benefit from such a service, although they suspect it may be years before any such platform gains traction.

“I don’t see a need for a private bank right now, because rich people invest offshore,” said Douglas Barnett, head of business development at PXP Asset Management in Ho Chi Minh City. “But it is a good idea for someone to develop a reputation as a wealth manager now and be there as the market evolves.”

Bill Stoops, CIO at Dragon Capital in HCMC, said today Vietnam’s wealthy prefer to invest on their own. “But private banking works elsewhere, so why not here?” He reckons such a service would prosper if it targets the mass affluent, particularly via pensions, as the country gradually adopts a voluntary defined-benefit system.

But throughout Asia, despite the need for professional advice, wealthy people have not adopted the European model of private banking, said Andy Ho, CIO at VinaCapital. “When it comes to investing in stocks or real estate, people say they can do it themselves,” he said. “It’s not clear why people would participate, especially if the bank can’t provide secrecy or tax protection.”

For a private bank to be effective it will need to offer the kind of products that people can’t do themselves, such as corporate bonds or derivatives, which are either scarce or banned in Vietnam, Stoops said. But eventually the markets will deepen. He also reckons it will take time for the country’s per capita GDP to be big enough to support private banking: today it stands at $1,900.

Target segment
But VPBank Securities’ Dung says there are plenty of wealthy people already who need this kind of service.

Although there are no public tax or banking records to measure the number of rich people, studies by credit card companies suggest Vietnam now has 15,000 people with $1 million or more of investable assets. The ranks of the rich are estimated to be growing by 30% a year, Dung said.

Other people asked by AsianInvestor about this wonder if Vietnam, ruled by a Communist party, is a good place to start a private bank. “This is not a country where you want people to know you are rich,” said one broker.

They also believe that while the State Securities Commission is progressive and supports innovation, the State Bank of Vietnam may be harder to convince.

“Given the current weakness in the banking system, the central bank may be cautious,” said one head of an asset management business. “Any direct investment by a bank is going to raise a red flag. Even if it is on behalf of a client, anything that sits on the bank’s balance sheet is a potential problem.”

Executives also say any private bank offering has to be credible and long-term. It will need to be open architecture, with the private bank agnostic about whose product is sold on it. Ideally it should include fixed deposits, insurance and a variety of investment products. And relationship managers need to be dedicated for many years – a rarity in Vietnam.

“Who runs this business?” wondered one fund exec. “There is a need for professional advice but it has to come from people who are very experienced. If you screw up, you won’t be able to get out of the country.”

Finally, brokers in Vietnam get paid to transact, not to help clients get wealthy over time – so is there a way to align the interests of the salespeople with that of the client? This is a problem throughout Asia, and there is no evidence that institutions in Vietnam have a solution, although Nathan, in an email to AsianInvestor, says the VPBank Securities' private-banking staff "are not brokers and will not be paid for transactions".

The total experience
But VPBank Securities’ Dung is optimistic that over time his firm will develop a useful platform. He said there is no need for a special licence. Rather at the early stage, it will be about integrating the operating platforms and back offices of the bank and securities arms. Then under Nathan it will be about creating a team of specialists to cater to wealthy clients, starting with clients of the commercial bank.

He acknowledges that rich people prefer to invest on their own. “But without advice, they fail,” he said, arguing that most investors lose when they speculate in real estate, gold or stocks.

Over time, as regulations and conditions allow, VPBank will add investment products, including mutual funds, money market funds, insurance and real-estate investment advice.

Dung is also in tentative discussions with foreign financial institutions. “We want to team up with international private banks – we can refer clients to them. But in return we want training and help with our IT platform.”

And while Dung is keen to be the first to set up a domestic private bank, he said it won’t be called that. “People here don’t understand what a private bank is,” he said. “It’s not about the branding. It’s about giving them the total experience.”

Correction: An earlier version of this story stated foreign banks target rich people onshore and recommend they move money offshore. The corrected version states they target mass affluent onshore and refer customers to offshore private-bank affiliates, but do not recommend they transfer assets offshore.