Bank restructuring process continues to take place strongly in 2017

05-Jan-2017 Intellasia | Bao Dau Tu | 6:00 AM Print This Post

The waves in bank restructuring has still been ongoing and is said to be stronger in 2017. There will be bankruptcies of credit institutions (CIs), mergers and acquisitions (M&A) deals with participation of foreign investors, and presence of new bankers.

The trial on the serious corruption case in Vietnam Construction Bank (VNCB) held in the last days of 2016 closed a rough year for the banking system as the process to restructure the system has always been implemented drastically throughout the year.

In 2016, no new weak banks were forced to conduct M&A or acquired at zero dong per share. Some new names were included in the list of weak banks, such as Export Import Commercial Joint Stock Bank (Eximbank) and DongA Commercial Joint Stock Bank (DongA Bank), etc. In addition, many bank leaders (of Mekong Housing Bank, Global Petro Bank, and DongA Bank) were prosecuted and many serious cases at banks were brought to trial. This fact shows that the bank restructuring remains a very challenging task which causes numerous losses.

The restructuring wave has yet to stop and will even be stronger in 2017. According to information of Bao Dau Tu newspaper, the State Bank of Vietnam (SBV) has given the green light to announce bankruptcy of a CI. If the petition for bankruptcy proceeding is handled by the court and decision is issued, this will be the first case of bankruptcy of a CI under the Bankruptcy Act 2014.

The decision to announce bankruptcy of a subsidiary of a bank will pave the way for the bankruptcy of a bank in the future. This is one of the new solutions of the Scheme to restructure the banking system in 2016-2020 period.

Previously, deputy prime minister Vuong Dinh Hue said that the government has proposed a stronger solution which is to pilot bankruptcy of weak banks and weak credit institutions. The interests of depositors will be protected and domino effect will be prevented. According to deputy prime minister Hue, if this solution is implemented, it will have a huge wake-up effect for bankers.

Currently, SBV has been building the Scheme to restructure CIs associated with bad debt settlement in 2016-2020 period. Experts believed that in addition to the focus on bad debt handling, the solution to announce bankruptcy of banks will be a new content of this scheme. Another new content is that there will be more participation of foreign investors. Information of many foreign investment funds showed that foreign investors are still interested in the banking market of Vietnam.

Most recently, according to information given by prime minister Nguyen Xuan Phuc at the Vietnam Development Forum 2016 (VDF 2016) held in December 2016, the Asian Development Bank (ADB) and a Vietnamese private partner are planning to acquire a weak bank of Vietnam (which was previously bought at zero dong per share) and they may introduce to other partners to support Vietnam in dealing with bad debts together with weak commercial banks.

Previously, SBV’s Governor Le Minh Hung also expressed the desire to have more positive participation of foreign investors in the restructuring process of local banks, and committed to create favourable conditions for investors.

Dr Nguyen Duc Kien, vice Chair of the Economic Committee of the National Assembly said that these messages of the government to foreign investors are very clear, indicating that the government is determined to handle weak banks. Accordingly, all investors having financial and administration capacity have the opportunity to join the Vietnam’s banking market.

In fact, in the last two years, many banks in the region have penetrated in Vietnam. However, it is very difficult to set up an extensive network like that of a local bank. Thus, for investors paying about 100-200 million US dollars to acquire a local bank is acceptable.

Certainly, calling for participation of foreign investors in the restructuring of banks is not an easy task. In 2016, only Tien Phong Commercial Joint Stock Bank (TPBank) successfully sold five percent of its stake to International Finance Corporation (IFC). TPBank is currently one of the banks having the lowest bad debt ratio in the system.

The Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) has been negotiating to sell 7.73 percent of its shares to GIC investment fund from Singapore. This deal is likely to be completed in 2017. Chair of Vietcombank’s Board of directors Nghiem Xuan Thanh shared that in addition to having transparent data, a bank must have strategic orientation which brings added value to foreign investors in addition to having transparent data in order to attract foreign investors.

Obviously, foreign investors tend to choose healthier banks to make investment. Of course, the situation will be different if the ownership limit at weak banks is expanded and the prices are more comfortable. Economic expert Dr Le Xuan Nghia said that the reason for the limited number of successful deals is the overly high prices and limited volume of shares.

So far, the target to thoroughly handle weak banks of SBV has not been completed. However, some names have stood out, proving that the bank restructuring process is on the right track. Specifically, out of the nine CIs which were forced to restructure in 2011, TPBank has significantly changed from a weak banks having high bad debts to a typical digital bank with the lowest bad debt ratio in the system. Compared to late 2012, the total assets of the bank are now six times larger with nearly doubled charter capital. In 2016, TPBank was the only bank shook hand with foreign investor.

National Citizen Commercial Bank (NCB), formerly known as Navibank, has made its mark on the banking market for being a small but healthy bank which does not provide dispersed services but focuses on specialised products and tailor-made financial packages for each customer group. Therefore, the indicators of the bank’s financial health have sharply increased in the recent years, especially capital mobilisation, lending, total assets and number of customers, etc.

TPBank and NCB are the typical successful examples for the banks which have seriously conducted the restructuring and found their own direction.

In addition to small banks, many major banks have also recorded achievements. The inclusion of Commercial Joint Stock Bank for Industry and Trade (Vietinbank) and Vietcombank in the list of top 500 leading banks in the world showed that large banks have been transforming themselves to compete with regional banks.

According to banking experts, bank restructuring is a regular and constant task. The cases like the downfall of Eximbank from a large bank to a weak bank, or the rise of TPBank from a weak bank to a top digital bank in the system will continue to be seen.


Category: FinanceAsia

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