MoneyNovember 2-8, 2015

By Trang Nguyen

Though local state-owned enter-

prises wishes to sell stakes in banks

to which they contributes capital, no

foreign investors want to buy such

stakes unless the foreign ownership

limit at banks is lifted.

As part of the group’s route to

divest from its non-core busi-

nesses, state-run Electricity of

Vietnam (EVN) wants to sell its

stakes at Ho Chi Minh City-based

An Binh Bank (ABBank), and so

far has sold 81.5 million of AB-

Bank shares, equivalent to 16 per

cent of the bank’s chartered capi-

tal. EVN still holds 41.5 million

ABBank shares, or 8 per cent of

the bank’s stakes.

Likewise, the Ministry of Fi-

nance’s (MoF) Debt and Asset Trad-

ing Corporation (DATC) has put its

stakes at Oriental Commercial Bank

(OCB) and Saigon Commercial

Bank (SCB) up for sale, starting at

VND4,900 ($0.22) per OCB share

and VND4,100 ($0.19) per SCB

share. The DATC currently owns

26,660 OCB shares and 24,662 SCB

shares.

State-run Vietnam Posts and

Telecommunications Group is also

divesting from its Maritime Bank

ownership, disposing of 71.5 mil-

lion shares at a starting price of

VND11,700 ($0.54) per share.

Investing in banks was once

seen as “the goose that lays the

golden egg” for many state-owned

enterprises (SOEs). During 2007-

2009, investing in banks or bank

stocks could certainly yield big

profits, and many banks were also

set up then, as part of the fashion-

able and profitable trend.

However, later on, the govern-

ment decided that it did not need to

hold on to stakes that it deemed

non-essential.

The government and the banks

themselves have always yearned for

the participation in local banks of

foreign investors, who are very

strong financially and technically,

with modern corporate governance.

However, according to experts,

doubts are still lingering over the

local banks’ management and oper-

ation, as well as the prospects of the

local banking sector and the foreign

ownership threshold, which in turn

affect both local and foreign in-

vestor confidence and the decision

to invest in local banks.

Ho Chi Minh City-based chief

investment officer Andy Ho at

VinaCapital – the country’s largest

fund manager in terms of assets,

when asked if the company had

plans to invest in banks, stated that

VinaCapital would not necessarily

acquire the local bank stocks, given

fears over the local banks’ weak

management and operation that had

led to fraud and the arrest of several

bank leaders in recent years.

Peter Sorensen, managing direc-

tor at ABB Merchant Banking - a

Hanoi-based corporate and invest-

ment consulting firm, also com-

mented that investing in a bank was

essentially a leveraged investment

in the Vietnamese economy, with a

premium according to the strength

of the particular institution being in-

vested in. There was still a consid-

erable amount of scepticism within

the investor community around the

Vietnamese economy’s exact future

trajectory.

“The pricing of the bank stock is

being scrutinised very closely,”

Sorensen said, explaining that as in-

vestments were proposed at a signif-

icant premium to book value, there

was uncertainty among investors

about being able to get their re-

quired returns when investing in

Vietnamese banks.

Meanwhile, Takashi Sakakibara,

special advisor of Japan Interna-

tional Co-operation Agency’s chief

representative in Hanoi, said that

“the divestment process of local

banks, as far as I’m concerned, still

has a long way to go.”

According to him, the banks that

are going to be divested from are

small to medium-sized banks, with

limited network coverage and cus-

tomer base. As such, foreign in-

vestors, including Japanese investors,

are not very interested in acquiring

these banks’ stocks at present.

VinaCapital’s Ho underscored

the foreign ownership limit (FOL)

as a major obstruction to foreign

investors.

“The FOL is currently capped at

30 per cent, so foreign investors do

not have a say at banks. Investing a

large amount of money into banks,

yet lacking the right to make impor-

tant decisions there, is indeed the

biggest drawback for foreign

investors like us,” he said.

The proposal

Vietcombank chairman Nghiem

Xuan Thanh recently proposed that

the government lift the FOL at

banks to above 30 per cent, and at

the same time, reduce state-owned

stakes at banks to 51 per cent, in a

bid to meet the raising demand for

bank capital, support the slumping

state budget, and subsequently at-

tract foreign investors.

Echoing Thanh’s proposal,

Sakakibara, however, noted that it

would actually take time and a thor-

ough procedure to consider raising

the FOL and reduce the state-owned

bank stakes.

“While the government may

maintain the current FOL, it can per-

haps grant foreign investors, who

may only acquire some 10-20 per

cent of the available bank stakes, the

right to veto important decisions in

the bank’s operations and manage-

ment by amending the corporate

charters of the bank,” he suggested.

ABB’s Sorensen said that the

foreign ownership limit should be

fully removed from investments in

certain banks.

“If foreign owners can hold ma-

jority stakes and fully control oper-

ations, they are more likely to bring

their technical expertise and experi-

ence to these banks,” he said.

“If foreign investors could hold

the majority in strong banks, they

will invest and help create leading

banking institutions in the country,

which could be role models for the

whole Vietnamese banking sector,”

he said.n

By Minh Trang

Vietnam should let banks fall into

insolvency in the years to come, if

they are too weak.

During a conference discussing

a legal framework to support the

bank restructuring process, held in

Hanoi last week, Le Thi Nga,

Deputy Chairwoman of the Na-

tional Assembly’s Justice Commit-

tee, said that letting weak banks go

to the wall would “ensure fairness

for taxpayers whose money is used

by the State Bank of Vietnam

(SBV) to save the weak banks.”

“A bank going into insolvency

will be a good lesson for both the

banking sector and depositors, pre-

venting them from venturing to take

risks, resting assured that the SBV

can intervene and save them

anytime,” she said.

According to her, the recent take-

over of weak banks in Vietnam is

simply a temporary measure to min-

imise existing losses, amid the

clean-up process of the local bank-

ing system. As such, it should only

be regarded as a first step towards a

more rounded legal framework for

bankruptcy among the country’s

credit institutions, especially as the

National Assembly passed the Law

on Bankruptcy as recently as 2014.

This law, according to Nga, has

set up a legal framework outlining

the bankruptcy procedures for

credit institutions, and such a

process will be handled through the

court accordingly.

However, during 2011-2015, in

accordance with the government’s

policies aimed at stabilising the

country’s macro-economy and en-

suring the safety of banking activi-

ties, the government has

temporarily held off on applying

bankruptcy laws at credit

institutions.

The SBV has so far taken over

three troubled banks, namely

Global Petro Bank (GP Bank),

Vietnam Construction Bank

(VNCB), and OceanBank, for

VND0, as part of its efforts to wipe

out all weak and poorly-managed

banks in Vietnam.

According to the SBV, the local

banking system is not ready to un-

dergo bank liquidation, and that

such a process could actually

threaten the safety of the whole

banking sector, as well as affect the

rights and benefits of depositors.

“The SBV has firm legal

grounding to acquire the weak

banks at virtually nothing. It is ac-

tually the most practical measure at

the moment, given the current con-

text of the banking system, and to

reduce losses during the bank re-

structuring process,” said lawyer

Dang Dung of Dang Dung Law

Firm.

“Such a measure has prevented

the falling domino effect in the

banking system and has also sent a

warning message to the manage-

ment board of the banks,” he said.n

Banks warned that bankruptcy safety net is temporary

Investors cautious overbank shares

With foreign ownership still capped in banks, investor interest remains subdued Photo: Le Toan

The FOL is currentlycapped at 30 per cent, soforeign investors do nothave a say at banks.Investing a large amountof money into banks, yetlacking the right to makeimportant decisionsthere, is indeed thebiggest drawback forforeign investors like us.

- Andy HoVinaCapital’s chief investment officer

“