Vietnam could use foreign investors’ help fixing a banking system that
is hobbling its economy, but slowing growth, bad loans and a lack of
transparency make for a challenging sales pitch.
The government may allow foreign
investors to take positions as big as 49% in state-owned banks, or even
majority stakes conditional upon later divestment, people familiar with the
proposed plans have told The Wall Street Journal. Selling those stakes would
help Vietnam attract the foreign capital and expertise it needs, according to
Ivan Tan, a director at Standard & Poor’s.
Foreign banks are now allowed to
own 20% of a Vietnamese bank as an individual investor, or 30% with a partner.
The government owns a majority—in some cases, 100%—of all five state banks.
Vietnamese government officials
couldn’t be reached for comment.
Not too many years ago, foreign
banks might have been eager to buy into Vietnam
HSBC
Holdings PLC, Société Générale SA and Australia
& New Zealand Banking Group Ltd. all invested in the
country’s banks prior to the global financial crisis, although ANZ sold its
stake in January 2012 as it shifted its strategy to focus on its own Vietnam
operation.
Now, although Japanese lenders
have recently bought into the sector, Vietnam’s banks look less inviting.
The economy has slowed from an
average of 7% annual growth since the early 1990s, according to HSBC, to 5%
last year, according to a government estimate. Property prices have slumped and
bad loans have piled up, making banks reluctant to lend and further weighing on
economic growth. Annual credit growth, which exceeded 20% from 2006 through
2010, slumped to 8.9% last year, S&P says.
Making matters worse, because of
a lack of transparency and weak accounting practices, no one is sure how many
bad loans are in the system. State Bank of Vietnam, the country’s central bank,
said in November that the ratio of bad debt to total loans was 8.82% as of the
end of September, up from 6% at the end of 2011. But Moody’s Investors Service
said in a report in October that nonperforming loans totaled at least 10% of
outstanding loans late last year, and could be much higher. Fitch Ratings Co.
analysts last year put the figure as high as 15%.
S&P’s Mr. Tan said foreign
capital is needed to recapitalize larger, state-owned banks, but “the appeal of
the Vietnamese banking system has diminished somewhat.”
To be sure, the government has
acknowledged the problem and is taking steps to fix it. For one, it is cracking
down on mismanagement at state-owned banks, arresting bank executives and at
least one prominent businessman in connection with allegations of improper
lending.
Last March, Prime Minister Nguyen
Tan Dung approved a three-year restructuring plan for the banking sector,
including the consolidation of smaller lenders and the creation of a “bad bank”
to buy distressed assets.
Japanese banks stand out as
active, even counter-cyclical investors in Vietnam’s banking sector, providing
an important source of capital for banks there, where lending growth remains
robust compared with Japan.
Mitsubishi
UFJ Financial Group Inc. for example, took a 20% stake in Hanoi-based
Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), one of
Vietnam’s largest banks by market share, at the end of last year for $741
million Mizuho
Financial Group Inc. bought a 15% stake in the Vietnam Bank for
Foreign Trade, the country’s largest listed bank by market value, for around
$560 million in September 2011.
And Sumitomo
Mitsui Financial Group Inc., which bought a 15% stake in Vietnam
Import-Export Commercial Joint Stock Bank for $225 million in 2007, is
currently in talks about buying a stake in Saigon Thuong Tin Commercial Joint
Stock Bank, known as Sacombank.
“Japanese banks are much more
long-term, and tolerant of minority positions and are happy to sit on small
stakes,” said Joe Gallagher, co-head of Asian-Pacific mergers and acquisitions
at Credit
Suisse AG.
.
Japanese banks also have somewhat
unique objectives. Their interest in Vietnam is partly motivated by their
desire to provide loans to Japanese corporations operating there, especially to
manufacturers, many of whom are looking to diversify away from China, and that
requires taking a minority stake in a Vietnamese bank, an executive at one of
Japan’s biggest banks said.
As a result, the recent deals by
Japanese lenders may not portend further acquisitions by foreign banks.
Existing foreign stakeholders
have no incentive to inject capital into the banks, Moody’s said, because most
are near ownership limits already, and capital requirements under new
international banking regulations, known as Basel III, make banks more
reluctant to take minority stakes.
Value is another deterrent. Many
deals so far have come at less-than-bargain prices of 2.5 to three times book
value, according to S&P. Such prices could be harder to justify in the new,
slower-growth environment.
“If the Vietnamese banks are
still demanding very demanding valuations… the pace of investment will slow
down this year,” Mr. Tan said.
Cynthia
Koons and Isabella Steger
Atsuko Fukase contributed to this
article.
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