With restructuring efforts stretching from 2011 to date, the Vietnam's banking industry has changed dramatically. But it seems that the banking industry has not gotten through the "storm" yet because there are still many unanswered questions.
Nine banks, excluding Global Petro Commercial Joint Stock Bank (GPBank) being restructured in a typical way, have been on the right roadmap of restructuring from 2011 to 2015.
Non-transparent information
Not surprisingly, the banking system has regained confidence with drastic and quick M&A methods. The only problem is whether the restructuring of the banking system goes along with the quality.
It is easily seen through the M&A cases of the first three banks. The M&A of the Saigon Commercial Bank (SCB), First Joint Stock Commercial Bank (FicomBank), and Tin Nghia Bank since late 2011 has led to many changes in the banking system. In the first stage, with the support of the State Bank of Vietnam (SBV) and the Bank for Investment and Development of Vietnam (BIDV), the post- M&A of the SCB soon remarked a good business performance. Until the end of 2013, the SCB settled all the refinancing loans of more than VND21,000 billion for the SBV to reduce the bad debt from 7.25 percent to 1.63 percent on December 31, 2012. This illustrates a growth of the total assets, the chartered capital and the credit and deposit rates in 2013, compared to the same period in 2012. The bank has also sold VND7,000 billion of the debt to the Vietnam Asset Management Company (VAMC). It can be said that after the period of low liquidity, the SCB has now been stabilised.
However, there are some points that many are still concerned about the level of transparency of information and actual health of the SCB. For example, under Document 1072/NHNN-TTGSNH of the SBV on the transfer of the shares of the shareholders of the SCB for foreign investors, the bank was approved by the Prime Minister at the request of the bank to transfer the shares of the existing shareholders to foreign investors who are individuals. In March, 2013, the SCB registered to offer 300 million shares to the strategic investors of the Macquarie Capital. In other words, how many individuals and organisations bought the shares of the SCB is not transparent.
In addition, the SCB has another shareholder who contributes VND400 billion to the SCB. Although the total shares of such the shareholder is not large, the ownership role of the shareholder as the member of the Board of Directors should be discussed. Vo Thanh Hung, Chairman and CEO of the An Phu Group is the representative of the company to hold the shares of the SCB. Mr Hung is currently Vice Chairman of the SCB. The main business lines of the An Phu Group are the real estate and imports and exports; however, the real estate contributes major revenue of the company. The ownership of the An Phu Group is quite complicated; its capital was invested under the ownership of the SCB, Tin Nghia Bank and FicomBank. Meanwhile, the main shareholders of the SCB are the companies in the real estate like the Tan Viet Stock Company, the Dang Nang House and other tourist companies who are also investing in the real estate projects like resorts.
Behind the capital capacity
The banks that require restructuring include the TrustBank. The TrustBank was officially renamed the Vietnam Construction Bank (VNCB) in 2013. VNCB raised fund mainly from the Thien Thanh Group and a group of shareholders in the real estate sector. This group has strong related to Pham Cong Danh, former Chairman of the Thien Thanh Group and the former Chairman of the VNCB; Thanh owns the shares up to 84 percent of the bank. Although the Thien Thanh Group holds approximately 10 percent of the shares of the VNCB at present, it is difficult to identify the shareholders among 545 shareholders of the bank who have relations with Pham Cong Danh and the Thien Thanh Group. This once again duplicates the old model of the VNCB before the first restructuring.
After it was renamed, the VNCB has announced its plans to raise capital from VND3,000 billion to VND7,500 billion. The increasing number of the capital was thought to be raised from Pham Cong Danh and his groups although the notice indicated that the current shares were distributed to the existing shareholders. It is believed that 84 percent of the shares of the existing shareholders come from Pham Cong Danh and his groups. On July 30, 2014 before the time when Pham Cong Danh was arrested and prosecuted for a violation of the organisational management under the law, the website of the VNCB officially released the news that 450 million of the shares of the bank had been sold out and the VNCB successfully increased its capital up to VND7,500 billion.
However, at the moment, this information on the VNCB's website does not exist. The shareholders of the VNCB now only include 551 shareholders including the Thien Thanh Group with the registered capital of VND3,000 billion since June 30, 2011. The public has no information about from whom the VNCB has raised over 450 million of the shares that are valued at more than double of the previous registered capital of the bank.
It was inevitable that after Pham Cong Danh and some leaders of the bank were arrested, the VNCB will be forced to restructure for the second time. The failure of the restructuring of the VNCB at the first time raises the issues of non-transparency that are happening during the restructuring of the banks and questions about the current capital capacity of bank owners during restructuring.
It is noted that the restructuring of the 8 banks except the GPBank are being implemented by either the M&A or the changes of the ownership. The capacity of the partners and the investors of the banks should be transparent, which helps lay the firm ground for the development of the banking system and gain the public confidence in the banks.
Recommendations from the BIDV
According to the Research Centre of the BIDV, the difficulties in the process of settling bad debts are resulted from different reasons (i) the legal issues on the collateral is complicated. Banks are facing more difficulties in settlement of collateral. Slow settlement of collateral causes negative impacts on bad debts of the banks, which increases operating costs during accrued interest process. In addition, values of many collaterals will decline deeply due to delays of sales of equipment and inventories to the loan and interests accrued. Therefore, slow settlement of bad debts may increase ratio of bad debts of the bank. (ii) the market of bad debt trading of Vietnam is undeveloped and bad debt trading companies only act as a broker to manage bad debts of credit institutions. Sales of bad debts have not attracted foreign investors. First, Debts and Assets Trading Company (DATC) is a partner of the banks to buy bad debts but its financial capacity is limited; second, most of assets management companies (AMC) of credit institutions are responsible only for accruing bad debts of the banks; and last, the VAMC has not got involved in the selling contract of the bad debts based on the market mechanism.
The BIDV recommends that banks should actively handle NPLs by handling collateral to guarantee accrued interests. First, for the company with a good profile that is facing with the difficult economic situation, its original loans will be turned into medium-term bonds and the rest of the overdue debts and bad debts will be converted into shares of the company if the company is analysed to have ability of surviving and growing. Second, the Ministry of Finance and other related ministries should amend relevant legal documents to loosen bottlenecks of collaterals and revise regulations on property ownership of foreigners to help develop bad debt trading market in Vietnam. Third, the Ministry of Justice, the Ministry of the Environment and Natural Resources, the Ministry of Construction, and the SBV should expand scope for obligations of customers in the near future. Fourth, the Government and the ministries soon create a uniform legal framework to allow credit institutions to take whole control over security assets to handle bad debts more quickly.
ML
Vietnamese
