Trading in the firing line holds back banks

When such errors occur in developed countries, the most painful punishment that is likely to befall the hapless individual involved is a slapped wrist, a wounded ego and a dented bonus.

So while the prospect of execution may seem like a far-fetched notion to us, this same punishment
is hanging over the head of one trader at the Incombank in Haiphong, Vietnam. It is the involvement of ABN Amro staff, however, that is setting alarm bells ringing at international banks operating in the region.

If staff face the threat of prison and a possible death sentence when they execute a trade that loses a government bank money, foreign banks will naturally be reluctant to deal with the government. They will also justifiably be more nervous about operating in the country at all.

This is a shame both for the bank and the country. Vietnam seems to be opening up to the outside world, with discussions about accession into the World Trade Organisation close to achieving their aim. Business is booming, with GDP growth not far behind China, its massive neighbour to the north. Foreign trade is also growing rapidly, with burgeoning rice and coffee exports putting pressure on Thailand and Brazil, the current leading producers of these commodities.

This has opened the door for financial institutions to enter the market to serve the businesses that are facilitating this growth. Banks such as Citigroup, Deutsche Bank, HSBC and ABN Amro have rightly been entering this market looking to exploit the rapidly emerging opportunities. However, whether they will continue to invest will depend to a degree on what happens in the court case this week. If a long prison sentence or even the death penalty is handed down, Vietnam will struggle to attract the banking talent it needs to develop its still fairly rudimentary market.

Banks should, however, learn from this affair that they need to take care when operating in eveloping markets. Prop trading for state-run banks in Vietnam is obviously a precarious activity, and their nternational counterparts will now think twice about the kinds of business they enter into with them.