Vietnam - Joining hands with foreign banks not always ideal solution

The cooperation with foreign strategic partners proves to not always be the ideal solution for Vietnamese banks as they thought.

There are a lot of Vietnamese banks which have foreign strategic partners, who are the big names in the world. However, very few domestic banks have made breakthrough in their operation after joining hands with foreign banks.

French Société Générale bought 20 percent of stakes of SeABank in August 2008 – its first investment deal in the retail banking in Asia. The French bank sent experts to assist SeABank in its daily operation, such as risk management, network development and retail banking model development. However, the cooperation still has not shown clear effects.

SeABank has not made any considerable improvement in the business strategy in the last four years, while it has just focused on lending to businesses, while it still has few banking products.

A source has said that the foreign partner mostly gets involved in the bank’s activities to develop business. However, it’s unclear if the foreign partner gets involved in the risk management effectively.

Nguyen Thi Nga, Chair of SeABank, said the bad debt of the bank amounted to 2.8 percent of the outstanding loans in 2011. The noteworthy thing is that SeABank’s outstanding loans just accounted for 36 percent of the total asset value of 55 trillion dong of the bank by the end of 2010, while the securities investments reached 15.1 trillion dong, accounting for 27 percent of total assets.

The securities included the bonds issued to mobilize capital for real estate projects developed by the subsidiaries in BRG system, of which SeABank is also a subsidiary.

Therefore, it’s very likely that the figure of 2.8 percent did not truly reflect the quality of the bank’s assets.

Though the foreign partner owns 20 percent of stakes of SeABank, the ownership ratio is too low for the partner to deeply intervene in the bank’s business strategy, or veto the important business decisions, including the strategies on funding real estate projects or securities investment.

Due to many reasons, including the ones relating to the administration model, the post of CEO has changed several times. At present, the post is taken by Le Thu Thuy, the daughter of the bank’s chair Nguyen Thi Nga.

The foreign partner cannot intervene in the bank’s activities relating to the lending and risk management. The bank mainly lends to businesses, and a big proportion of the loans have been poured into the real estate sector, which is considered a risky sector.

Barriers exist

In general, the credit provided to institutional clients and risk management are two of the “restricted areas” for foreign partners, including the ones who have their representatives in the board of directors.

There always exist “sensitive and complicated relations” between the Vietnamese banks’ owners and their clients. Therefore, even though the foreign partners understand what is behind the credit contracts, they cannot make interventions.

In fact, some big commercial banks which have foreign strategic partners still have unsatisfactory subprime debts (non-performing loans or bad debts). Vietcombank’s finance report leased on April 20, 2012, showed that while the bank’s total outstanding loans dropped by 1195 billion dong, the bad debt ratio increased significantly.

By March 31, 2012, the bank’s bad debt has increased by 40 percent over December 31, 2011, which means the bad debt ratio has increased from 2 percent earlier this year to 2.84 percent.

Japanese Mizuho, the foreign strategic partner of Vietcombank, after buying 15 percent of stakes of Vietcombank, would face challenges in assisting the partner to control the credit quality.

VietNamNet

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