Finance & Banking

Last updated: Wednesday, January 23, 2019


Banks Still Need Drastic Restructuring

Posted: Thursday, January 12, 2017

After 5 years of restructuring weak banks to early 2017, the State Bank of Vietnam (SBV) continued to spot out fragile lenders and openly assessed cross-ownership issues to introduce effective settlement measures. This showed that the process of the banking system restructuring still has very hard work ahead.

Restructuring - Five years and more

SBV Deputy Chief Inspector Nguyen Van Hung said that the central bank continued to handle major system issues in 2016, including credit institution model, bank risk management capacity, bad debt and cross-ownership. Frail credit institutions were scaled down and merged with healthy ones in a willing spirit. State-owned commercial banks were lifted to a new level. Weak lenders were drastically restructured and settled after their problems were defined. All fragile credit institutions were identified, including three banks purchased by the SBV for zero Vietnamese dong and two other weak joint stock commercial banks. They will be focused for settlement in 2017.
According to the restructuring progress of these five weak banks, the central bank reported the cases to the Government and the Politburo gave detailed conclusions to them. The SBV has integrated directive opinions to report them to the Government for guidance before getting started. In 2017, it will drastically carry out restructuring tasks and gradually tackle existing matters. With respect to ownership and risk management, the SBV defined these as key matters and will introduce measures for gradual settlement in order to terminate bank cross-ownership by 2020.

To accelerate the restructuring process of weak banks, Prime Minister Nguyen Xuan Phuc has directed the SBV and concerned agencies to work on schemes with respect to increase of foreign ownership ratio at Vietnamese commercial banks to the current ceiling of 30 per cent, even to 100 per cent in small, weak banks which seek to improve financial strength. However, no banks have sold 100 per cent of stake to foreign investors, including weak ones. They were eventually sold to the SBV for VND0.

Five banks set for restructuring in 2017 were expected to find foreign buyers. Mr Andy Ho, Managing Director of VinaCapital, said, the restructuring process of the Vietnamese banking system is an opportunity for foreign investors when the Government of Vietnam has allowed them to hold more than 30 per cent and even 100 per cent of stake at Vietnamese banks in special cases.

Restructured banks will find it hard to seek foreign investors, because their concern is the health, growth prospect and share value of the banks, while these banks are weak ones. Dr Le Xuan Nghia, an economic specialist, said that the central bank essentially bought frail banks for VND0 to prevent the collapse of the entire system, but it should not hold it for long. It should take into consideration sale, merger or even bankruptcy.

Ending cross-ownership?
Shocking bank-related litigations last year posed interlaced cross-ownership ties and devil cornering alliances. Extricating cross-ownership and divestment is lagging behind schedule more than one year later, and still finds it very hard to go on.

State-owned enterprises (SOEs) gradually worked out plans and accelerated divestment in non-core businesses, including banking investment. But in many cases, investors shrugged off offers or bought them cheaply. For example, at its public share auctions held at the Hanoi Stock Exchange in mid-April 2016, MobiFone announced to offer its entire stakes at SeABank (33.4 million shares) and Tien Phong Bank (14.28 million shares) for VND9,600 and VND8,900 per share, respectively - lower than the par value of VND10,000 per share. Unfortunately, no bidders registered to buy shares at SeABank, while only six investors filed to buy 8.7 million shares at Tien Phong Bank.

Vietnam Posts and Telecommunications Group (VNPT) also failed to sell 71.5 million shares at Maritime Bank. The group presently continues to offer these shares for more than VND837 billion. Vietnam Debt and Asset Trading Corporation (DATC) also could not sell nearly 50,000 shares at two banks although the starting prices were less than VND5,000 per share.

Interlaced bank cross-ownership is also difficult to handle. Vietcombank held 7.16 per cent of stake at Military Bank, 8.19 per cent at Eximbank, 5.07 per cent at OCB, 4.37 per cent at Saigonbank, and 10.91 per cent at Cement Finance Company (CFC).

According to Circular 36, a commercial bank can hold stake at only two credit institutions at the same time except for the case that credit institutions are subsidiary units of such bank. The bank cannot hold 5 per cent or more of shares with voting rights at other credit institutions and cannot assign representatives to the Board of Directors of credit institutions that it acquires, except for the case that credit institutions are subsidiary companies of the bank or the bank takes part in restructuring and settlement of weak credit institutions under the direction of the SBV. However, banks have yet to fulfil this requirement. Vietcombank is allowed by the SBV to keep up the current stake at Military Bank, as the latter operates effectively.

In addition to handling weak banks, settling non-performing loans (NPL) is a central task in the bank restructuring scheme in 2016 - 2020. SBV data showed that the bad debt ratio of the banking system was 2.46 per cent as of the end of November 2016. However, Vietnam Asset Management Company (VAMC) has yet to treat VND230 trillion of debts it has purchased from banks in the past three years. It has managed to recollect VND43 trillion, of which nearly VND4 trillion was taken from debt sold, VND12 trillion came from sale of security assets and the rest was collected by assigned credit institutions.

Le Minh

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