Investors cautious over bank shares

With foreign ownership still capped in banks, investor interest remains subdued
Photo: Le Toan

As part of the group’s route to divest from its non-core businesses, state-run Electricity of Vietnam (EVN) wants to sell its stakes at Ho Chi Minh City-based An Binh Bank (ABBank), and so far has sold 81.5 million of ABBank shares, equivalent to 16 per cent of the bank’s chartered capital. EVN still holds 41.5 million ABBank shares, or 8 per cent of the bank’s stakes.

Likewise, the Ministry of Finance’s (MoF) Debt and Asset Trading Corporation (DATC) has put its stakes at Oriental Commercial Bank (OCB) and Saigon Commercial Bank (SCB) up for sale, starting at VND4,900 ($0.22) per OCB share and VND4,100 ($0.19) per SCB share. The DATC currently owns 26,660 OCB shares and 24,662 SCB shares.

State-run Vietnam Posts and Telecommunications Group is also divesting from its Maritime Bank ownership, disposing of 71.5 million shares at a starting price of VND11,700 ($0.54) per share.

Investing in banks was once seen as “the goose that lays the golden egg” for many state-owned enterprises (SOEs). During 2007-2009, investing in banks or bank stocks could certainly yield big profits, and many banks were also set up then, as part of the fashionable and profitable trend.

However, later on, the government decided that it did not need to hold on to stakes that it deemed non-essential.

The government and the banks themselves have always yearned for the participation in local banks of foreign investors, who are very strong financially and technically, with modern corporate governance.

However, according to experts, doubts are still lingering over the local banks’ management and operation, as well as the prospects of the local banking sector and the foreign ownership threshold, which in turn affect both local and foreign investor confidence and the decision to invest in local banks.

Ho Chi Minh City-based chief investment officer Andy Ho at VinaCapital – the country’s largest fund manager in terms of assets, when asked if the company had plans to invest in banks, stated that VinaCapital would not necessarily acquire the local bank stocks, given fears over the local banks’ weak management and operation that had led to fraud and the arrest of several bank leaders in recent years.

Peter Sorensen, managing director at ABB Merchant Banking - a Hanoi-based corporate and investment consulting firm, also commented that investing in a bank was essentially a leveraged investment in the Vietnamese economy, with a premium according to the strength of the particular institution being invested in. There was still a considerable amount of scepticism within the investor community around the Vietnamese economy’s exact future trajectory.

“The pricing of the bank stock is being scrutinised very closely,” Sorensen said, explaining that as investments were proposed at a significant premium to book value, there was uncertainty among investors about being able to get their required returns when investing in Vietnamese banks.

Meanwhile, Takashi Sakakibara, special advisor of Japan International Co-operation Agency’s chief representative in Hanoi, said that “the divestment process of local banks, as far as I’m concerned, still has a long way to go.”

According to him, the banks that are going to be divested from are small to medium-sized banks, with limited network coverage and customer base. As such, foreign investors, including Japanese investors, are not very interested in acquiring these banks’ stocks at present.

VinaCapital’s Ho underscored the foreign ownership limit (FOL) as a major obstruction to foreign investors.

“The FOL is currently capped at 30 per cent, so foreign investors do not have a say at banks. Investing a large amount of money into banks, yet lacking the right to make important decisions there, is indeed the biggest drawback for foreign investors like us,” he said.

The proposal

Vietcombank chairman Nghiem Xuan Thanh recently proposed that the government lift the FOL at banks to above 30 per cent, and at the same time, reduce state-owned stakes at banks to 51 per cent, in a bid to meet the raising demand for bank capital, support the slumping state budget, and subsequently attract foreign investors.

Echoing Thanh’s proposal, Sakakibara, however, noted that it would actually take time and a thorough procedure to consider raising the FOL and reduce the state-owned bank stakes.

“While the government may maintain the current FOL, it can perhaps grant foreign investors, who may only acquire some 10-20 per cent of the available bank stakes, the right to veto important decisions in the bank’s operations and management by amending the corporate charters of the bank,” he suggested.

ABB’s Sorensen said that the foreign ownership limit should be fully removed from investments in certain banks.

“If foreign owners can hold majority stakes and fully control operations, they are more likely to bring their technical expertise and experience to these banks,” he said.

“If foreign investors could hold the majority in strong banks, they will invest and help create leading banking institutions in the country, which could be role models for the whole Vietnamese banking sector,” he said.