Bank cross-ownership, a tough problem to crack?

Vietcombank recently said it has received permission from the State Securities Commission to sell its stakes in the HCM City-based Saigon Bank for Industry and Trade (Saigonbank) and Việt Nam Cement Finance Company. - Photo cafef.vn

The Joint Stock Commercial Bank for Foreign Trade of Việt Nam, as the lender is formally known, will auction its entire holding of 13.2 million shares, corresponding to a 4.3 per cent stake, in Saigonbank at a starting price of VNĐ12,550.

Its 6.6 million shares in CFC (10.91 per cent) will go under the hammer starting at VNĐ11,549.

The deals are expected to generate roughly VNĐ242 billion for Vietcombank and enable it to comply with the State Bank of Việt Nam’s circular 36/2014/NHNN on the operation of financial and credit institutions in Việt Nam.

In November 2014 the central bank issued Circular No 36/2014/TT-NHNN stipulating prudential ratios for the operations of credit institutions and foreign banks.

The circular allows banks to hold shares in a maximum of two other credit institutions, with the stake in each not exceeding 5 per cent of the total equity of that institution.

The central bank issued the circular stipulating limits and safety ratios in the operations of CIs to restructure them and ensure the safety of the financial system.

But despite the circular, which took effect in July 2016, cross-ownership among credit institutions remains rife, with many lenders continuing to flout its provisions.

Vietcombank, for instance, still owns more than 7.16 per cent of Military Bank, 8.19 per cent of Việt Nam Export Import Commercial Joint Stock Bank, 4.3 per cent of Saigon Bank, and 5.07 per cent of Orient Commercial Joint Stock Bank.

Eximbank has a 8.76 per cent stake in Sacombank. BIDV owns 65 per cent of the Laos-Việt Nam Joint Stock Commercial Bank and 50 per cent of the Việt –Russia Commercial Joint Stock Bank.

Maritime Bank and Nam Á Bank similarly flout the regulation.

Analysts said cross ownership of credit institutions has not reduced as expected only because the regulations have not been enforced: Violators have got away scot-free, and so there is no pressure on anyone to divest cross-holdings.

Another reason is that many banks find it difficult to identify domestic or foreign investors willing to buy their shares in this difficult market.

While local investors often lack the financial wherewithal, their foreign counterparts are stymied by the ownership cap regulations.

The cap on foreign holdings in a bank is 30 per cent, a rule that often means the shareholding is too low to have a say in the decision making process the lender.
But the analysts also said the cross-ownership issue is difficult to settle also because of the complexities involved.

Many banks have stakes in each other or own shares of enterprises that own stakes in banks. Some of them are institutional shareholders that own over 15 per cent of a credit institution or have shareholders and related persons of such shareholders owning over 20 per cent stakes.

The problem is many investors want to pull out but cannot find buyers who offer good prices.

Many banks too want to sell their stakes in other banks, particularly in small ones or those with a high bad debt ratio, but are unable to.

To avoid the central bank’s penalties, many banks have increased their capital to reduce other banks’ ownership in them as a percentage of the capital.

But dealing with this cross-investment problem cannot be delayed much longer because the process of global integration has quickly brought many foreign banks to Việt Nam’s shores, and many of those who have not come yet will soon do so.

Therefore, transparency and compliance with legal provisions are prerequisites for cross-ownership in credit institutions if banks do not want trouble, they said.

2017, hard year for tyre makers

The Southern Rubber Industry Joint Stock Company has set itself last quarter targets of VNĐ1 trillion (nearlyUS$ 50 million) turnover and VNĐ15 billion pre-tax profits.

If achieved, turnover will increase by 15 per cent over last year but the company will fall short of its full-year profit target.

Đà Nẵng Rubber Joint Stock Company expects to generate VNĐ1 trillion in turnover and VNĐ23 billion ($1 million) in pre-tax profit in the last quarter, which will increase its full-year figures to VNĐ3.755 trillion(180 million) and VNĐ186 billion ($9 million).

The latter figure is however much lower than the target of VNĐ540 billion.

Sao Vàng Rubber Joint Stock Company is likely to fall short of its profit target of VNĐ93 billion because in the first nine months it was only VNĐ36 billion.

Analysts blame the low profitability of domestic tyre companies on several factors, including the sharp increase in the prices of raw materials.

Industry insiders said the prices of most inputs have increased sharply this year, hitting profits.

Global crude prices have recovered significantly since the beginning of this year.

Brent crude stood at US$51.48 per barrel in April compared to $43.03 at the same time last year.

This has had a big impact on the prices of downstream products including synthetic rubber.

Meanwhile, natural rubber prices have also been rising due to the increasing global demand.

A report from the Association of Natural Rubber Producing Countries (ANRPC) says demand for natural rubber this year has been 400,000 tonnes higher than supply.

Việt Nam’s rubber export prices increased by 49 per cent year-on-year to US$1,851 per tonne in the first six months of the year.

Domestic prices too rose sharply. Latex prices in Đồng Nai, for instance, increased by VNĐ2,700 per kilogramme to VNĐ13,000 last July.

Meanwhile, the main raw material that domestic tyre and tube enterprises are using is natural rubber which accounts for up 70 per cent of the total.

The price of carbon black, which is also a very important raw material in making tyres, has also increased sharply because most the carbon black being used in Việt Nam is imported from China and the Chinese Government has strengthened its policy of environmental protection.

For tyre manufacturers, natural rubber accounts for 70 per cent of their raw material.

The prices of carbon black, also a very important raw material for making tyres, has also increased sharply because most of the carbon black used in Việt Nam is imported from China, whose Government has strengthened environmental protection policies.

The prices of other raw materials such as fibre and steel have also risen by 18-25 per cent.

But though costs have increased, tyre makers are no longer able to hike their prices as they used to in the past whenever raw material prices increased because the competition is getting fierce.

Their profits have understandably taken a hit.

To cope, tyre makers are coming up with various strategies.

The Southern Rubber Industry Joint Stock Company (CSM) is stockpiling raw materials to hedge against a possible hike in their prices.

CSM and some others are also exploring ways to expand exports and invest in developing new products, including radial tyres, which account for 50-60 per cent of the domestic market and whose demand is expected to rise sharply.

CSM has collaborated with the US’s Tireco to produced semi-steel radial tyres that are used for sedans.

In October, DRC too introduced a new product meant for agricultural machines.