VinaCapital’s head of risk and compliance Ly Xuan Thu lists the main risks facing large corporates in Vietnam

Vietnamese investment management and real estate development firm VinaCapital’s Ly Xuan Thu (pictured) has told the StrategicRISK Vietnam Risk Report that economic risk is her country’s number one challenge.

“The government is in the process of restructuring the banking sector because it has not performed well in the past and was affected by the economic crisis,” she said.

“The government is trying to restructure the sector to review the non-performing loans (NPLs) and control the inflation rate, while still maintaining a reasonable economic growth rate. It established a company to buy NPLs back from companies to improve the liquidity of the local banking sector.”

The remaining risks in Thu’s top 10 are:

Supply chain disruption (water and electricity scarcity, labour imbalances, outsourcing, natural disasters)
“There is a threat of natural catastrophe every year in Vietnam, particularly in central Vietnam.”

Regulatory changes (compliance)
“Vietnam is a member of the Association of Southeast Asian Nations and the World Trade Organization and the next step is to join the Trans-Pacific Partnership (TPP). Vietnam needs to look at the regulatory issues and adapt with the requirements of development as soon as possible, and that is really a big challenge.”

Human capital (retention and acquisition of talent, succession plan, income disparity)
“Vietnam is making an effort to integrate with the international and regional environment but still encounters labour imbalances and human capital scarcity, particularly with skilled labourers. For example, it is difficult for international companies to fill top management positions with local Vietnamese, so they have to hire expatriates to fill top management positions. Vietnam needs to think about how to fill this gap in the future.”

Natural catastrophe (extreme weather, climate change)
“Some big companies in Vietnam ask for complete insurance policies for supply chain systems from manufacturing until delivery covering high-risk areas that are often affected by natural disaster. However, this does not mean that companies do not have any mitigation risk strategies to reduce the loss for their companies.”

Market risk (foreign exchange, interest rate, investment development)
“Mainly linked to capital markets, like the stock index that is up and down every day, always in an unstable condition.”

Failure to innovate (technology)
“Particularly for the local companies when they need to compete with multinationals. For example, most Vietnamese consumers still prefer foreign products rather than local brands.”

Reputation damage
“In my view, reputational risk is very important with foreign companies because they know the value of goodwill assets, and reputation is a big goodwill asset for a company. At the moment, local companies do not consider it a key risk for them, because they are not multinationals at this stage.”

Cyber threats and vulnerabilities (hacking attacks, data loss)
“The government is beginning to become aware of this with more attacks on online trading, so it will have a new law about that.”

Globalisation (TPP)
“The strategy is to open the markets to multinational markets, but as well as benefits this will bring challenges for the country, particularly for small- and medium-sized companies that might be hurt by this programme because of the lack of competitive advantage to compete with multinationals. Vietnam needs to think about how to build a framework to protect the small and medium-sized companies.”