'Many Foreign Banks Want to Buy All Bad Banks of Vietnam'

Foreign investors are taking particular interest in the banking restructuring process in Vietnam in order to search for the opportunity to take over weak banks, said Mr Keith Pogson, Managing Partner of Financial Services, Ernst & Young in the Asia - Pacific region.

 

To have a strong banking system, a country needs only 3 -5 major banks. Other banks must be healthy enough and free from impacts of bad debts and subprime debts. In Vietnam, there are many small banks, and I think, the SBV should support and facilitate the merger of these banks.

 

Accordingly, the SBV should firstly create a policy framework conducive for bank M&As and ensure the safety of deposits at these institutions. Secondly, it needs orientations and measures to deal with nonperforming loans and subprime loans. Like in other countries, Vietnamese laws prohibit selling assets below book value. This is a challenge in creating tools to solve bad debts and subprime debts.

 

The reason why the Vietnamese banking market is very exciting in the past time is no banks have risen to the position of backbone banks. In my opinion, banks in the Top 10 list are capable of becoming leading banks. This position requires three factors: different competitive strategy from competitors, transparent corporate governance, and smart technology investments.

 

Banks may set up joint ventures to settle bad debts or sell them to investment banks. China handled nonperforming loans and subprime loans by allowing the establishment of bad debt banks or establishment of joint ventures [for the purpose]. These institutions are applied a special debt handling mechanism. This is very important because if a bank is burdened with bad debts and subprime loans, its leaders will always have to concentrate on handling such debts rather than developing other areas that may be good for the economy.

 

Foreign investors are very interested in Vietnamese banks for many reasons. First, when global economies are uncertain and most markets do not have normal growth, markets with huge population, high GDP growth and rising income like Vietnam will be very attractive.

 

Second, the Vietnamese banking system is still fragmented and no banks are taking the lead. Hence, the chance for becoming market leaders is very open. Third, foreign investors feel they have certain advantages in skills, products and technologies. There is a quite clear trend that foreign investors are, and will be, interested in the Vietnamese bank market. Of course, this trend needs to be supported by Vietnam’s reforms. If the bank restructuring process in Vietnam is slow and inefficient, investors will find the market attractive but risky.

 

Foreign investors are interested but they are still waiting because many countries in the world are facing difficulties. Parent banks cannot invest abroad, especially banks in Germany, France and Italy. In my opinion, potential investors for Vietnamese banks are now Australian, United States, Canadian and Asian banks.

 

The second reason is that investors are watching because they are still waiting to see the Government’s legal framework for bank M&As and the ownership room for foreign investors at local banks. The current room for a single bank of 15 - 20 percent is not big.