Vietnam expects foreign capital to help restructure weak banks

 

There are eight foreign banks in Vietnam. In principle, foreign banks can enter the market three ways: setting up representative offices and then banks (Woori Bank, CIMB and Hong Leong); buying strategic shares in domestic banks, and joining the management board to learn more about the market (HSBC, ANZ and Standard Chartered); and setting up joint ventures with domestic banks and then taking over the stake from domestic partners (Shinhan and Public Banks).

 

However, as analysts have commented, this takes a lot of time and the foreign banks cannot develop large networks of branches. 

 

This is partially why foreign banks’ market share in Vietnam remains modest and they have been growing slowly in Vietnam despite the strong brands and powerful financial capability. 

 

Experts estimated the 9 percent of market share for foreign banks in 2009 and 11 percent in 2016.

 

It is be easier for foreign banks to expand in Vietnam if they buy controlling stakes in domestic banks.

 

The problem is that under current laws, foreign banks can buy no more than 30 percent of stakes in one Vietnamese bank.

 

However, the ceiling foreign ownership ratio would be lifted if foreign banks pour capital into weak banks to restructure them.

 

Foreign banks see a lot of benefits to this. First, they don’t have to satisfy strict requirements as stipulated by laws to set up 100 percent foreign legal entities in Vietnam (for example, they must have total assets of $10 billion by the year before the establishment year).

 

Second, by taking over weak banks, foreign bankers will inherit large transaction networks which can help them expand business. The expansion of networks has been put under strict control by the State Bank. 

 

 

Of the nine weak banks named by the central bank in 2012, two have foreign shareholders – TP Bank and SCB.

 

The other banks still have not successfully attracted foreign banks because of two barriers – bad debt settlement and prices.

 

Settling bad debts is a headache for the banking sector. Meanwhile, for weak banks, this is the key that determines the success of the restructuring. The debt settlement prospect is not bright because of the slow recovery of the real estate market, the underdeveloped debt trading market and other reasons.

 

Regarding pricing, analysts said foreign investors usually offer low prices, because of bad operations and the slow debt settlement process. Meanwhile, Vietnamese bank owners want high prices.