Vietnamese Weak Banks: Potential Target of Foreign Investors

During the last two years, out of nine weak banks of Vietnam, seven have one after another announced restructuring under the cover of merging or consolidation with another organization. There hasn’t yet been any foreign investors rushing in to save these weak banks, though many have been longing to become a shareholder.

By now, in the group of nine, GPBank is the only one having not yet announced a restructuring plan.

 

Reportedly, in recent time, GPBank’s activities have been placed under the special supervision of the State Bank of Vietnam (SBV). The bank restructuring, therefore, also will follow the direction of SBV.

 

According to Decision 48 of the Prime Minister issued recently, it will be within the right of SBV to decide which credit institutions can contribute capital directly or purchase shares of banks which are in the list of special supervision. This rule allows SBV to play "matchmaker" and draw foreign investors to buy shares of the ailing banks.

 

According to one of our own sources, a foreign bank has come to Vietnam and expressed interest in GPBank. However, at this moment, the potential investor has not yet revealed the detailed plan of whether to invest in or purchase shares of the Vietnamese bank.

 

"Right now, they are still learning carefully and not rushing into the deal. But we are fairly sure that they have had reliable information about the bank. And the deal is only a matter of time and price," said the source, adding that given the current difficult situation, if there’s an offer from foreign investors, the odds of the bank refusing would be close to none.

 

After a period of experiencing “hot” growth, some banks have been beset with serious problems, such as virtual capital, losses and bad debts "ballooning" while lacking capital resources. Now, when it’s time to restructure, those banks are in desperate need of money. Therefore, foreign investors who want to buy ailing banks must have financial strength, as well as a sound investment strategy to be able to prop up those banks.

 

"For a long time, foreign banks’ investment in Vietnam’s banking and financial sector had been limited due to strict rules. Recently, when Vietnam’s market has been buzzing with banking system restructuring activities, foreign investors also have been monitoring it more closely, looking for opportunities to become shareholders of Vietnamese banks. That’s because financial investment is still considered the most beneficial array," said a banking expert. Thus, at this moment, Vietnamese weak banks are a target of foreign investors.

 

In theory, calling for foreign investors to invest in weak banks will help create new capital flows, bringing in real money to shore up the banking activities. Beside, with the support from foreign investors of high potential, credibility and good experience, the weak banks also have the chance to refresh the management mindset and business strategy. However, there’s also some concerns that if Vietnam opens the door and welcomes foreign banks, our financial market will face manipulation with foreign investors trying takeovers in the banking system.

 

Also according to this expert, the current regulations limit the maximum shares ownership of a strategic foreign investor in Vietnamese bank to 15 percent. If the investors wish to increase the stake to 20 percent, they must get approval from the Prime Minister.

 

One example is the case of VietinBank, the bank had to get approved by the PM before sealing the deal of selling 20 percent stake to the strategic investor, The Bank of Tokyo - Mitsubishi UFJ ( BTMU - Japan). This merger, which took place at the end of 2012, was worth USD 743 million, approximately VND 15,465 billion. Through this method, the Bank of Japan has become the largest shareholder of Vietinbank, officially setting foot in Vietnam to exploit the high-potential financial markets.

 

Recently, SBV has been drawing up draft regulations on foreign investors purchasing shares of Vietnamese banks. This new draft considers the possibility of loosening the share ownership limitations on strategic foreign investors and relevant strategic investors to 20 percent of authorised capital. However, to be able to work under this favourable condition, foreign investors must meet several strict criteria for assets, experience, credit rating etc, to ensure that they are fully capable of fulfilling their financial commitments to the bank.

 

However, the work of restructuring weak banks is easier said than done, even if SBV is success in matching foreign investors and GPBank or other weak banks, the chance of a successful M & A deal is still slim. The main reason is that foreign investors always want to maximise their shares to increase their rights and interests in the banks.