[Vnbiz] Here comes Vietnam

[Craig Stevenson]

There was a piece on an investment minded TV program last night that listed
Vietnam as growing in interest for return minded Hedge funds.

One Hedge fund that is interested in Vietnam (and other similarly sized
places), as opposed to other high profile destinations normally preferred by
Hedge funds such as China, is Scimitar.

Apparently the hedge fund is called Scimitar for those interested in
searching and finding out more.

Craig


On 10/30/06, Tran Huu Hong Truong <tranhht-vcci at hn.vnn.vn> wrote:
>
>
> [Vietnam Business Forum]
>
>
>
>
>
>
>  1
>
> *Institutional Investor*
>
> International Edition
>
> Sep2006, Vol. 31, Issue 6
>
> *Here comes Vietnam*
>
> Investors have turned red-hot on Vietnam's booming economy. But with
> privatization
>
> sluggish, its banking system in shambles and its infrastructure under
> strain, is Vietnam
>
> inviting another false dawn?
>
> There short years ago, recalls Klaus Rohland, the World Bank's country
> head for
>
> Vietnam, conversation on Hanoi's cocktail circuit was focused on the
> question, "Do they
>
> really want to reform?" So opaque was the communist government that nobody
> was sure
>
> if the country's leaders were serious about the modest agenda of economic
> fixes it had put
>
> forward. At that time the administration was just beginning to relax the
> rules about
>
> forming joint ventures and was looking at ways to decentralize its
> investment decisions.
>
> These days investors -- noting landmark listings of state-controlled
> enterprises, good
>
> progress on talks to join the World Trade Organization and a recent
> leadership shuffle
>
> that kept in place progressive politicians in say they are confident that
> the country's
>
> leadership, notwithstanding some resistance from old guard conservatives,
> is committed
>
> to progressive, market-led economic change.
>
> "The only question today is whether the pace of reforms is fast enough,"
> says Rohland.
>
> Many investors are not waiting to find out. Foreign direct investment in
> Vietnam surged
>
> 38 percent, to $5.8 billion, last year -- an amount that, measured against
> GDP, is bigger
>
> than Chinas massive $60 billion inflow in 2005. Though the Ho Chi Minh
> City Securities
>
> Trading Center (Hostc), often referred to as the Vietnam stock exchange,
> has a
>
> capitalization of just $2.5 billion, its index has soared this year,
> buoyed by the
>
> government's privatization plans and Vietnam's expected entry into the WTO
> next year.
>
> Still, the retail-dominated market's relative obscurity was a blessing in
> disguise this
>
> spring: It was largely insulated from the impact of May's emerging-markets
> meltdown.
>
> The current swell of optimism in Vietnam follows a half decade of robust
> economic
>
> progress, underpinned by the government's pro-reform policies. During the
> past five
>
> years, the local economy -- driven by robust exports and an explosion of
> private sector
>
> investment -- has averaged 7.4 percent annual growth. Last year it
> expanded by 8.4
>
> percent, making it Asia's second-fastest-growing economy behind China.
> That impressive
>
> growth was achieved despite an outbreak of 66 bird flu cases that killed
> 22 people over
>
> the year through November 2005. Vietnam has since been free of the virus.
>
> The reforms scheduled to be implemented over the next four years include
> privatizations
>
> designed to boost the stock market's capitalization nearly sixfold, from
> $2.5 billion today
>
> to as much as $15 billion by 2010; an overhaul of the banking system that
> will see state-
>
> owned banks listed and government support withdrawn; and the creation of a
> more
>
> independent central bank.
>
> "We are in transition," former deputy prime minister Vu Khoan told
> Institutional Investor
>
> in an interview early this year. "Our priority is to ensure a perfect
> market economy by the
>
> year 2010."
>
> Khoan, who is now a special foreign affairs envoy to prime minister Nguyen
> Tan Dung,
>
> stepped down as deputy prime minister in June after a leadership reshuffle
> that followed
>
> April's 10th National Congress of the ruling Communist Party. But no
> change to the
>
> government's reform plans are expected, and, indeed, the National Congress
> has
>
> reinforced the commitment to making Vietnam a modern industrialized nation
> within the
>
> next two decades. Vietnam is pushing to secure WTO accession by November,
> when it
>
> will host U.S. president George W. Bush and Asian leaders at the
> Asia-Pacific Economic
>
> Cooperation Leaders' meeting in Hanoi.
>
> "There is renewed confidence' that Vietnam should continue on its present
> course of
>
> reform," says Carlyle Thayer, a Vietnam expert who is professor of
> political science at
>
> the University of New South Wales in Sydney, Australia. "They are so
> locked into
>
> integrating with the world economy that they can't turn back. That's just
> not on the table."
>
> Among the most vocal of Vietnam bulls is Merrill Lynch's Hong Kong-based
> equity
>
> strategist Spencer White. "You will be investing in Vietnam within two
> years," he told
>
> readers of an influential February research report titled "Vietnam:
> Asean's New
>
> Investment Frontier." White believes "Vietnam is beginning to deliver on a
> decade of
>
> promise." He predicts that stock market capitalization, boosted by the
> listings of stateowned
>
> enterprises, could almost triple, to $7 billion, by the end of next year.
> "Buy equity
>
> exposure now," he writes, "for your fund, for yourself or for your
> children. Buy now and
>
> tuck the investment away for ten years. In 2016 we can come back to
> discuss compound
>
> returns, the toys that you can buy or the college that they [your
> children] will go to."
>
> Hanoi-based Peter Ryder, a former Salomon Brothers investment banker and
> co-founder
>
> of private equity firm Indochina Capital Corp., concurs. Last October his
> firm, which has
>
> been investing in Vietnam since 1992, bought 49 percent and management
> control of
>
> brokerage firm Mekong Securities for an undisclosed sum. The plan, says
> Ryder, is "to
>
> transform Mekong into the country's dominant investment bank."
>
> "Vietnam has arrived," says Ryder, who moved to Hanoi in 1992. "The genie
> is clearly
>
> out of the bottle. It's not going to happen in a straight line, but by
> 2020 Vietnam will have
>
> regained its place as the economic powerhouse of Southeast Asia, as it was
> under the
>
> French."
>
> Maybe. But if such blue-sky visions are to be realized, Vietnam has a lot
> of work to do --
>
> and fast. The country's banking system is dilapidated, and despite
> significant upgrading
>
> of roads, power plants and ports over the past decade, the country's
> infrastructure is
>
> struggling to keep up with growth.
>
> Vietnam, in other words, is under pressure to avoid the kind of false dawn
> that has
>
> tripped up investors in the past. International investors first gave the
> country a try in the
>
> mid-1980s during the launch of economic reforms known as doi moi, or
> renovation
>
> agenda. Under doi moi, Vietnam gradually moved away from a centrally
> managed
>
> economy by allowing, and later encouraging, private enterprise and
> abandoning a push to
>
> collectivize agriculture. Despite the early promise, interest among
> outside investors
>
> fizzled when it became clear that progress would be painfully slow.
>
> The most recent case of Vietnam fever hit in late 1994, when the U.S.
> lifted its trade and
>
> investment embargo on Vietnam. Investors rushed in, and the press made
> much ado about
>
> the birth of a new Asian tiger. Mark Mobius, the head of Franklin
> Templeton's
>
> International's Asia operations, predicted a stock market would open
> within two years.
>
> He quickly launched the Templeton Vietnam Opportunities Fund, raising $105
> million.
>
> Four years later the stock market was still not up and running, and the
> fund was
>
> struggling to find any significant Vietnam investments. Fund managers
> changed its name
>
> to Templeton Vietnam and South East Asia Fund and began investing in other
> parts of
>
> Asia. Some capital was invested in Thai stocks, just before that market's
> implosion in
>
> 1997. U.S. investors sued, charging the fund with breaches of fiduciary
> duty. (The case
>
> was settled out of court with $64 million returned to investors and
> without any
>
> acknowledgment of wrongdoing.) But Templeton was not the only fund to
> suffer defeat:
>
> The Lazard Vietnam Fund, the Beta Vietnam Fund and the Vietnam Frontier
> Fund were
>
> among other first movers to close up shop after overly optimistic forays
> in Vietnam.
>
> "The bureaucracy takes a long time to arrive at decisions," says a senior
> Hanoi-based
>
> foreign banker. "The need for consensus building is deeply ingrained in
> the culture."
>
> "Vietnam's provinces are likened to individual kingdoms, and there's
> always a tension
>
> between central and provincial units," adds Thayer. "A big challenge for
> the leadership is
>
> getting consistent implementation of policies across the country."
>
> Some old Vietnam hands believe history may be repeating itself and that
> Vietnam might
>
> once again fall short of its potential. "Outsiders' perceptions are
> improving faster than the
>
> underlying changes in the country," says Chris Freund, founder of Ho Chi
> Minh Citybased
>
> private equity investor Mekong Capital and manager of its $26.2 million
> Mekong
>
> Enterprise Fund. "I don't think the stock market will be as big as
> everyone is expecting."
>
> "Is this the tipping point?" asks Stoyan Tenev, an economist who follows
> Vietnam for the
>
> International Finance Corp., the private sector arm of the World Bank
> Group. "Is it about
>
> to take off and become the next tiger? It is safe to assume the country
> will move forward
>
> slowly and gradually. I don't think we are going to see takeoff in the
> near future."
>
> Still, Vietnam is considered by many investors to be the most promising
> economy in
>
> Southeast Asia -- an astonishing development, considering that just 15
> years ago it was
>
> afflicted by grinding poverty. In 1990 the country's population stood at
> 66 million; more
>
> than 50 percent of its people lived below the poverty line. Vietnamese
> boat people were
>
> washing up on shores across Asia in search of a better life. Today in a
> country of more
>
> than 83 million people, 20 percent of the population is classified as
> impoverished, and 1.5
>
> million new jobs are being created every year. According to Khoan,
> Vietnam's per capita
>
> income, which hit $640 last year, will reach $1000 by 2010. Slowly, the
> country is
>
> catching up with other emerging markets in the region: India's 2004 per
> capita income
>
> was $620, Indonesia's $1,140, and Chinas $1,500, according to the World
> Bank.
>
> Such improvement is attributed largely to the government's steadfast
> dedication to its doi
>
> moi agenda and to the cumulative effect of gradual reforms, implemented
> over two
>
> decades.
>
> The New Enterprise Law, enacted in 2000, stands out as a key driver of
> economic
>
> growth. The law protects the rights of citizens to set up enterprises
> without interference
>
> from government officials. The change triggered an explosion of small
> businesses, whose
>
> numbers increased from 200 six years ago to 200,000 at the end of 2005. It
> also led to the
>
> elimination of more than 100 types of business licenses and thus reduced
> the time and
>
> costs needed to register a new company while limiting opportunity for
> bribes. The
>
> resulting growth helped consumption expand 20 percent last year. Export
> earnings have
>
> also surged, rising 22 percent in 2005, to $32 billion, after increasing
> by 31 percent in
>
> 2004. All of the country's main exports -- crude oil, textiles and shoes
> -- put in strong
>
> performances. And the economy is already open to outside money: Firms with
> foreign
>
> investors account for more than 40 percent of the country's manufactured
> output.
>
> In May, investors were encouraged by another positive development: Hanoi
> reached an
>
> agreement with the U.S. on a trade deal that had been blocking Vietnam's
> entrance into
>
> the WTO. Membership in the trade organization will codify the rights of
> nonnative firms
>
> to invest in such sectors as banking, telecommunications, distribution and
> retail. "It will
>
> be a big boost to the economy," says Richmond Mayo-Smith, Ryder's Ho Chi
> Minh Citybased
>
> partner at Indochina Capital. "It makes Vietnam a safer market for
> investors."
>
> Thayer adds that WTO membership will add a new urgency to Vietnam's
> reforms. "The
>
> discipline will now be coming from outside," he says. "Vietnam is entering
> a rules-based
>
> system. What can the Communist Party do if it doesn't like the rules? It
> has to adhere to
>
> them. It can be taken to arbitration, and it will be forced to deliver."
>
> The same reforms that are helping propel Vietnam's buoyant economy are
> also raising
>
> expectations for its embryonic stock market. Now one of Asia's smallest,
> with only 37
>
> small companies listed, the Ho Chi Minh City Securities Trading Center, as
> the exchange
>
> is formally known, was set up in mid-2000. It went into vertical ascent in
> January 2006
>
> following the listing of Vinamilk, the country's biggest dairy company and
> the first major
>
> company to list on the exchange. Vinamilk's arrival instantly doubled the
> market's overall
>
> capitalization to $1.1 billion. Since listing, the company's
> capitalization has doubled to $1
>
> billion, igniting a frenzy of excitement that caused the stock to surge 80
> percent through
>
> late May this year, to 545 points. Overall, the exchange's market cap has
> soared from
>
> $250 million a year ago to $2.5 billion at the end of July.
>
> Saigon Thuong Tin Commercial Bank, or Sacombank, whose investors include
>
> Australia's ANZ National Bank and the International Finance Corp.,
> followed Vinamilk
>
> onto the exchange in early July, when it transferred across from the
> opaque over-thecounter
>
> market. "We wanted to be the first bank to list," Sacombank chairman Dang
> Van
>
> Thanh told Instituitonal Investor in an interview.
>
> Ho Chi Minh City-based Asia Commercial Bank ($1.7 billion in assets), in
> which
>
> Standard Chartered Bank and the IFC are investors, will likely follow with
> an IPO later
>
> this year or next. The state-owned Bank for Foreign Trade of Vietnam,
> known as
>
> Vietcombank, and the Housing Bank of Mekong Delta will both be converted
> into
>
> shareholding companies this year in preparation for 2007 listings.
>
> Meanwhile, the country's biggest stock broker, Bao Viet Securities, is
> expected to list this
>
> month, and, according to vice chairman of the State Securities Commission
> Vu Bang, the
>
> Hanoi-based Vietnam National Reinsurance Co., founded in 1995 as the
> country's first
>
> reinsurance firm, may follow shortly. The upcoming year should also see
> IPOs for two
>
> Hanoi-based mobile phone operators, Mobi-Fone and VinaPhone. The
> motivation for all
>
> listings, says Bang, is a desire "to improve reputation and image and to
> make it easier to
>
> mobilize more capital."
>
> As the list of companies planning to go public lengthens, investors are
> encouraged by the
>
> new Securities Law, set to take effect on January 1, 2007. The law,
> explains Merrill
>
> Lynch's White, will offer both a carrot and a stick. Beginning next year,
> companies that
>
> list on the main board will benefit from major tax breaks for four years.
> For the first two
>
> years, starting from the date of the listing, companies will pay no tax on
> earnings; in the
>
> subsequent two years, they will be taxed at only half the corporate tax
> rate, which is 28
>
> percent. Meantime, those companies that have already listed on the largely
> disclosurefree
>
> and pre-IPO over-the-counter market will be subject to the same rules of
> disclosure
>
> as those on the main board.
>
> The law is expected to result in large-scale migration from the OTC market
> to the main
>
> board, says White. The OTC market is significantly bigger, with some 2,400
> mostly
>
> private companies listed and a trading that's up to seven times the main
> board's $5 million
>
> daily, says White. Although indicative prices are published in local
> media, most deals are
>
> sealed by agreement between buyers and sellers -- which can take place,
> for example, in a
>
> coffee shop -- and later reported to the company registrar.
>
> Forcing OTC companies to comply with the same disclosure standards as the
> main board
>
> will remove what White considers "one of the major incentives that
> currently keep
>
> companies in the opaque confines of the OTC market." He believes the new
> Securities
>
> Law changes the listing dynamic "to an extent that is not widely
> appreciated by many
>
> overseas investors."
>
> To encourage more global participation, the government raised the ceiling
> on foreign
>
> ownership of listed companies last October, from 30 percent to 49 percent.
> Its hope is
>
> that a wider variety of products for investors might eventually help the
> stock market trade
>
> more rationally. As it is, retail investors have pushed 2006 prices into
> the stratosphere,
>
> and valuations have become unattractive. Hostc stocks trade, on average,
> at multiples of
>
> about 15 times projected 2007 earnings, notes White; some banks on the OTC
> market
>
> trade at four to five times book value. Citigroup has been trading Vietnam
> stocks since
>
> last year, and Merrill in mid-August became the latest U.S. investment
> bank to gain
>
> approval to trade Vietnam-listed stocks. J.P. Morgan Chase & Co. says it
> is now in the
>
> process of initiating coverage of Vietnam equities.
>
> Meanwhile, another market has sprung to life in Vietnam. Last September
> the country
>
> debuted on the global bond market, raising $750 million for a ten-year
> issue priced with a
>
> yield of 7.125 percent -- 60 basis points tighter than equivalent
> Indonesia sovereign
>
> bonds and 90 basis points tighter than those of the Philippines. The bond
> was six times
>
> oversubscribed, attracting interest from investors in Asia, Europe and the
> U.S. with an
>
> order book of some $4.5 billion.
>
> Vietnam's issue marked a turning point in its relations with global
> investors: Its
>
> delegation carried out exhaustive road shows and provided all the
> explanatory data
>
> demanded by foreign interests. "It showed the country was more willing to
> embrace
>
> international investors than it ever had been in the past," says Jon
> Pratt, Hong Kongbased
>
> head of debt capital markets at Credit Suisse, sole underwriter for the
> bond. Credit
>
> Suisse fended off strong competition from Citigroup, whose determination
> to land the
>
> deal saw its executive committee chairman, Robert Rubin, make two
> 11th-hour trips to
>
> Hanoi. "Vietnam is now viewed by investors as one of the true emerging
> economies in
>
> Asia," says Pratt.
>
> Former deputy Finance minister Le Thi Bang Tam, now head of the newly
> formed State
>
> Capital Investment and Trading Corp., told Institutional Investor in an
> interview early
>
> this year that "the government is encouraging big corporates like
> Petro-vietnam, Vietnam
>
> Shipping Co., Electricity of VietNam and some others to issue corporate
> bonds."
>
> Investment bankers believe the sovereign bond issue could open the door to
> a mini-flood
>
> of issues from state-linked corporations.
>
> In May the state-owned Bank for Investment and Development of Vietnam
> issued its first
>
> domestic bonds. Arranged by HSBC, the 2.1 trillion Vietnamese dong ($134
> million)
>
> bonds had terms of 10 and 15 years with interest rates of 9.8 percent and
> 10.2 percent,
>
> respectively. Credit Suisse's Pratt says his bankers have met with a large
> number of state
>
> enterprises that could be future issuers.
>
> "Every investment bank under the sun is running through Vietnam," says
> Tony Foster,
>
> Hanoi-based managing partner with law firm Freshfields Bruckhaus Deringer.
> "It's gone
>
> from lukewarm to red-hot."
>
> Vietnam's rapid rise is also drawing multinational corporations eager to
> benefit from the
>
> nation's cheap, highly literate and energetic workforce. In February,
> Santa Clara,
>
> California-based Intel Corp. announced plans to build a $300 million
> facility for testing
>
> and assembling chips in Ho Chi Minh City; it will employ 1,200 workers.
>
> "Lots of companies do not want to be 100 percent dependent on China, and
> Vietnam is
>
> seen as the best alternative in Asia," says Mekong Capital's Freund. The
> $5.8 billion that
>
> flowed into Vietnam as foreign direct investment in 2005 was up from $2
> billion in 2001.
>
> The banking market in particular has proven attractive to overseas money,
> say investors,
>
> even though the antiquated banking system is one of the key targets for
> reform. Bad loans
>
> account for 15 percent to 20 percent of the country's total, and despite
> the government's
>
> attempts at reform, a World Bank report published late last year said, "It
> is not at all clear
>
> that the restructuring measures have made them truly profitable.… It is
> likely that new
>
> nonperforming loans were being created more or less at the same speed at
> which the old
>
> ones were being solved (or rather, written off), if not faster."
>
> Still, foreign interests have begun to move in and have chosen to eschew
> state-run entities
>
> in favor of smaller, better-managed joint stock banks. Following ANZ
> Bank's March
>
> 2005 purchase of a 10 percent stake ($27 million) in Sacombank, Standard
> Chartered
>
> Bank in June bought 8.56 percent of Asia Commercial Bank for $22 million.
> In January
>
> this year HSBC Holdings bought 10 percent of Vietnam Technological and
> Commercial
>
> Joint Stock Bank, or Techcombank, for $17.3 million, and in March,
> Singapore's
>
> Overseas-Chinese Banking Corp. agreed to buy 10 percent of Vietnam
> Joint-Stock
>
> Commercial Bank for Private Enterprises, or VP Bank, for $15.7 million.
>
> The banking market has tantalizing appeal for global investors. Asia
> Commercial Bank's
>
> assets have soared from $638 million in 2003 to $1.7 billion now.
> President and CEO Ly
>
> Xuan Hai believes assets can grow to between $5 billion and $6 billion in
> five years.
>
> "Maybe that is a little bit ambitious, but we are an ambitious bank," he
> says. "The
>
> potential in this market is huge. Total deposits are equivalent to only 63
> percent of GDP
>
> compared to an average in the region of 100 to 150 percent."
>
> Adil Ahmad, the Ho Chi Minh City-based head of alliances for ANZ Bank who
> now sits
>
> in an office next to Sacombank chairman Dang Van Thanh, adds that since he
> arrived in
>
> Vietnam in 2000, banking industry assets have quadrupled, from roughly $13
> billion then
>
> to approximately $54 billion now.
>
> While the government rushes to update its banking sector and cash in on
> the current wave
>
> of outside interest, it must also keep pushing reform on two other key
> fronts: privatization
>
> and infrastructure development.
>
> The World Bank says that more than 2,000 state-owned enterprises in
> Vietnam have thus
>
> far been turned into shareholding companies. However, it noted in a
> December 2005
>
> report, that "hardly any of them have been listed." In June last year the
> government
>
> directed 178 joint stock companies (with majority stakes held by the
> government) to list,
>
> along with another 75 state enterprises. But, notes the World Bank report,
> "progress has
>
> been poor." Nobody quite knows why. Posits the bank, "One reason could be
> that the
>
> timetable set out by the decision does not match the enterprises' business
> plans."
>
> Public facility upgrades are not happening fast enough to please
> investors, either; in one
>
> 2005 World Bank survey, one in five respondents said they consider
> infrastructure
>
> shortcomings an impediment to investment. Demand for electricity has been
> on the rise,
>
> increasing by 15 to 20 percent each year; ports are nearing capacity,
> particularly in the
>
> Ho Chi Minh City area, and roads in major cities are increasingly
> congested. Still, the
>
> government has made huge progress upgrading the infrastructure over the
> past decade,
>
> already having spent about 9 percent of its $50 billion GDP on the task.
> That figure is
>
> forecast to rise to about 11 percent annually between now and 2010.
>
> Now the country is aiming to bump up the amount of funding it receives
> from the private
>
> sector, foreign investors and other financing channels. It has already
> opened its doors to
>
> build-operate-transfer arrangements, under which outside investors build
> and run power
>
> plants or toll roads and return them to the government after an
> agreed-upon period. The
>
> government's official plan is to issue infrastructure bonds of some $4
> billion by 2010, but
>
> private sector economists say they have heard it might increase that
> amount by 75
>
> percent. Still, investors worry whether a ponderous bureaucracy can
> execute major
>
> projects fast enough.
>
> With accession to the WTO almost a certainty, the pressure is on Vietnam
> to deliver, and
>
> upgrading infrastructure may be the easy part. The more serious challenge
> will be
>
> upgrading inefficient state enterprises, which, says University of New
> South Wales'
>
> Thayer, will "very likely go under" if they fail to upgrade technology or
> find international
>
> partners.
>
> In holding back access to sectors such as banking, services, distribution
> and telecoms,
>
> "Vietnam has been like a poker player holding its cards to its chest,"
> says Thayer. "Now
>
> it's got to put the cards on the table and risk being trumped by someone
> else who is more
>
> efficient." The good news: Such pressure can only lead to progress.
> Concludes Thayer,
>
> "Even if Vietnam doesn't meet its objectives, it's going to go a long way
> toward meeting
>
> them."
>
> *Are Vietnam's banks ready for change?*
>
> To prosper, Vietnam's government must reform its antiquated banking
> system. Burdened
>
> by bad loans -- experts believe they might amount to 15 to 20 percent of
> total lending --
>
> banks suffer from the country's communist legacy and the lingering effects
> of statedirected
>
> lending policies. The financial system also lacks adequate laws allowing
> banks
>
> to seize the assets of bad debtors.
>
> Modernization is essential as the country readies itself to join the World
> Trade
>
> Organization, perhaps as soon as next year. In its "Vietnam Development
> Report 2006,"
>
> published last December, the World Bank warns that after WTO accession,
> Vietnamese
>
> banks that fail to make substantial changes won't be able to compete with
> global players
>
> in the local market. "In the absence of determined banking reform," the
> report notes, "the
>
> situation at state-owned commercial banks is bound to deteriorate."
>
> Vietnamese officials feel the pressure. "The deadline for opening the
> banking market to
>
> foreign competition is 2010," says Hanoi-based Dang Thanh Binh, deputy
> governor of
>
> the State Bank of Vietnam, the country's central bank. "That's the goal we
> have for
>
> opening the banking sector without limitations -- and the minimum option
> for WTO
>
> accession."
>
> Change won't come easily, though. Like China's banking sector, Vietnam's
> is dominated
>
> by four state-owned institutions: Vietnam Bank for Agricultural and Rural
> Development,
>
> Vietcombank, Bank for Investment and Development of Vietnam, and
> Industrial and
>
> Commercial Bank of Vietnam. Together they account for some 75 percent of
> total
>
> banking assets (about $54 billion). Then there is the Development
> Assistance Fund,
>
> which channels policy lending for the government. With outstanding loans
> of some 76.93
>
> trillion Vietnamese dong ($4.88 billion), it is the second-biggest lender.
> There are also 36
>
> so-called joint-stock commercial banks -- privately run banks in which the
> state owns a
>
> minority share -- and four joint-venture banks. Vietnam has 27 foreign
> bank branches.
>
> In recent years the government has injected 10 trillion dong into the Big
> Four banks to
>
> boost their capital. Now the government is talking tough. "The commercial
> banks have to
>
> take their own responsibility, and they are not allowed to borrow money
> from the state
>
> budget," says former deputy Finance minister Le Thi Bang Tam, now head of
> the newly
>
> formed State Capital Investment and Trading Corp., a government holding
> company set
>
> up to make state-owned enterprises more efficient.
>
> Tam adds that the government wants to attract foreign strategic investors
> to the state
>
> banks. Today any foreign investor can own up to 10 percent of a Vietnamese
> bank; in
>
> aggregate, foreigners can own up to 30 percent. The individual ceiling is
> expected to be
>
> raised to 20 percent when Vietnam joins the WTO.
>
> The central bank today is little more than an arm of the government, with
> the National
>
> Assembly, not the State Bank, calling the shots on monetary policy. A
> roadmap for
>
> banking reform proposed by the State Bank early last year would create an
> independent
>
> central bank consistent with international best practices. Still, says
> Binh, "Reform of the
>
> State Bank of Vietnam will require a remarkable change in thinking."
>
> -- Kevin Hamlin
>
>
>
>
>
> _______________________________________________
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