[Vnbiz] Banks FT review part two

[Craig Stevenson]

Vietnam may be humming with optimism, as it grows by nearly 8 per cent a
year and foreign investors flock to the country, but these are nonetheless
worrying times for Nguyen Hoa Binh, chairman of state-owned Vietcombank.

As one of Vietnam's four big state-owned commercial banks - which together
account for nearly 70 per cent of banking system assets - Vietcom once
loaned primarily to state enterprises, without worrying much about
borrowers' ability to repay.

Today, Vietcom, gearing up for partial privatisation, must run on commercial
principles, which means finding and wooing credit-worthy borrowers in an
environment where bookkeeping is far from transparent. Competition from
foreign banks is already intense, giving potentially good customers plenty
of options - and leverage on price.

"If they are good, they receive quotations not just from one bank," Mr Binh
said.

Vietnam's imminent accession to the World Trade Organisation, a boon for the
economy overall, will add to the pressure, as state banks move from
following government dictates in a command economy to facing the cold winds
of market forces.

>From next year, foreign banks - which are currently limited to just two
branches and face restrictions on deposit mobilisation - will be able to set
up wholly-owned Vietnamese subsidiaries, allowing them to open branches and
provide full service to Vietnamese customers.

Vietnam has also seen the burgeoning growth of domestic private banks, which
now account for around 20 per cent of the market. Several of these
institutions are now 10 per cent owned by major international banks,
including Standard Chartered <javascript:void(0);>, ANZ<javascript:void(0);>,
and HSBC <javascript:void(0);>.

Foreign banks see the tie-ups as a foothold in a fast growing market, while
the Vietnamese banks benefit from their partners' technology and management
expertise. While Hanoi now restricts a single foreign investor's holding in
a domestic bank to 10 per cent, that limit may soon be raised to 20 per
cent.

All this means that state banks are "running out of time" for reforms, said
one financial analyst, who asked not to be identified. Annual credit
expansion for private and foreign banks over the last six months has
averaged 35-40 per cent, while state bank credit expanded just 15-20 per
cent - although the private sector starts from a much lower base.

At the same time, state banks are also thought to be burdened with
relatively high-levels of non-performing loans, though no-one knows exactly
how much by because under Vietnamese accounting standards a rescheduled loan
is notconsidered a distressed asset, whether or not it is being actively
serviced.

While the central bank has instructed all institutions to report on their
bad debts using international standards, the banks have been given two years
to do so. Mr Binh said bad loans at Vietcom, which had assets of Dollars
8.3bn at the end of last year, stood at just 3 per cent by international
standards.

Still, Vietcom, which aspires to develop both its wholesale and retail
banking businesses, is not standing still. A recently concluded World
Bank-supported restructuring project led to fundamental reforms, including a
thorough overhaul of the banks' process for considering new loans, and Mr
Binh insists the institution faces no political pressure in lending
decisions.

While Mr Binh says he favours a tie-up with a foreign partner, the final
decision will be made by Vietnam's top leadership, which is actively
involved in the ground-breaking effort to take the institution public.

"The key issue is how the bank will be operating after it is equitised," Mr
Binh said. "Can we really be stronger, more effective, and better managed?
These issues are very important and also really challenging for the bank."
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