Dec 5, 2012

Vietnam - Restructured state owned conglomerates still insist on pouring money into banks

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VietNamNet Bridge – While a lot of institutional investors have got stuck with their investments in the banking sector, state owned conglomerates, which are undergoing the restructuring process, still want to “kick against the pricks.”

After getting downgraded from an economic group to a general corporation put under the control of the Ministry of Construction, HUD, an urban area and housing development, has expressed its ambition to make investment in the finance, banking and insurance sectors.

In its operation charter, HUD stated that with the investment capital of 3981 billion dong, it would still focus on developing houses, urban areas, industrial zones and trade properties. Especially, the state owned general corporation plans to jump into the fields of finance and banking.

The ambition by HUD remains on paper, while it has yet come true. However, the plan drawn up by HUD shows that the finance and banking sector, in the eyes of investors, remains very attractive and it can bring fat profits.

Though a lot of banks have been unprofitable or put under the special control by the State Bank, the banking sector has not become less attractive to investors as people thought.

The noteworthy thing is that state owned giants still wish to make investment in the finance and banking sector, though the State Bank of Vietnam has requested its big conglomerates to gather their strength on their core business fields and withdraw from other investment projects.

Some try to get out, others attempt to jump in

A lot of big guys have been quietly withdrawing from the banking sector. The family of the companies relating to the Asia Commercial Bank (ACB) have withdrawn 4.5 trillion dong worth of capital from Kien Long Bank and Eximbank. The investors relating to the big guy Dang Thanh Tam have quitted Western Bank and Navibank. Meanwhile, Dang Van Thanh’s family members have left Sacombank.

The big businessmen decided to leave for many reasons. However, the most important one is the big problems of the banking system.

A lot of commercial banks have reported the sharp fall of 50 percent in profit. The bad debt ratio has been increasing, the lending interest rates have decreased, while the credit demand is weak,

Not only small banks, but the big guys like Vietcombank, Sacombank, ACB or Eximbank all have reported the profit decreases. A report by the HCM City Branch of the State Bank of Vietnam showed that the local banks’ profit in the first 10 months of the year was just equal to 28.5 percent of that of 2011.

Some commercial banks once reported huge profits for the last some quarters. However, Governor of the State Bank of Vietnam Nguyen Van Binh then affirmed that the banking sector’s profit was not higher than other business fields.

A recent report by the World Bank and IMF showed that Vietnamese banks still cannot meet all the requirements shown in Basel I. The State Bank of Vietnam has just set a modest goal that by 2015, Vietnamese banks would meet all the requirements of Basel I and strive to partially satisfy the requirements of Basel II

Despite the warnings, state owned general corporations and economic groups still invested 23,744 billion dong in securities, investment funds, insurance, banking and real estate in 2011, up by 3056 billion dong over 2010.

Manh Ha

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