The banking sector is attractive to both Vietnamese and foreign investors. Banks, in turn, need capital from investors.
Le Xuan Nghia, head of the Department of Banking Development Strategy of the State Bank of Vietnam, said that after the Government’s reform policies, the operation of Vietnamese commercial banks had improved. The system has gained a growth rate of between 27 and 30 per cent per year. Its growth rate is forecast to be higher in the coming years. Local commercial banks’ bad debts have reduced significantly. In particular, commercial joint stock banks have seen their bad debts drop from 20 per cent to between 2.5 and four per cent. Their ROE (return on equity) has reached between 15 and 40 per cent per year. The banking industry is considered to have the highest profits despite being toughly audited. In fact, the sector’s growth rate may be much higher. However, being afraid of unexpected developments within the system, the State Bank of Vietnam has to constrain the market scale. Otherwise, the growth rate may reach between 30 and 40 per cent and local banks can mobilise all resources from the market.
With an increasingly high growth rate and a further expanded market, banks are making efforts to increase their capital, improve the quality of their services and safety of their operation. This is because each bank is required to have their equity minimally accounting for eight per cent of their total capital (at present, the rate is put at between three and four per cent). It is also a premise for banks to maintain their market shares when the market is opened up to both Vietnamese and foreign investors in the near future. While the State does not have the capital to beef up State-owned commercial banks and long-term bond issuance has its own disadvantages, the most important solution is to equitise banks. Therefore, after a long and detailed study, many banks have volunteered to be equitised. In addition, when Vietnamese banks begin to apply international accounting standards that were introduced in June 2005, their bad debt rate will increase three fold. Local banks, therefore, will have to develop plans to settle their bad debts with huge costs. In the coming time, there will be a great reform in the whole banking system leading to basic changes in each bank, including its own strategic shareholders.
The above mentioned information shows attractive opportunities for investors in the banking sector. However, it remains very difficult to invest in the market due to the State’s policies and banks’ business strategies. Bradley C. Lalonde, managing director of the Vietnam Partners Company, said that the Government has provided support for State-owned commercial banks so they had more advantages. The sector now accounted for 80 per cent of the banking industry’s total assets while 38 commercial joint stock and other banks account for only 20 per cent.
However, to increase capital for commercial joint stock banks, Lam Quynh Anh, lawyer from Freshfields Bruckhaus Deringer, said that maximum 10 per cent of charter capital of a bank an investor was allowed to hold is too low to attract foreign investors. With such a low rate, foreign investors have not enough powers to change banks’ management. In addition, a regulation that foreign investors are not allow to sell their shares within at least five years has also discouraged them, because according to Anh, it is difficult to forecast business opportunities.
Bui Thi Kim Oanh, representative of FINANSA, said that domestic banks were interested in international banks with great potential. They need strategic investors to improve their competitiveness with investors’ capital, technology and experience. Nguyen Hoang Hai, general secretary of the Vietnam Association of Financial Investors, said that the State should review a maximum percentage of shares a foreign investor is allowed to hold as small-sized banks need strategic investors with experience and capital from foreign countries.
Long Khanh
Vietnamese
