Bank of Tokyo-Mitsubishi looms large on the radar

Masaki Yamashita, general manager of Bank of Tokyo-Mitsubishi UFJ, Ho Chi Minh City Branch, talked to VIR’s Thuy Hanh about how the bank has fared following the huge injection of capital.

In mid-2011, Bank of Tokyo Mitsubishi UFJ, the largest bank in Japan by market value, received State Bank of Vietnam permission to raise its chartered capital from $45 million to $145 million. What were the driving forces behind such a large capital hike?
Bank of Tokyo-Mitsubishi UFJ first established its presence in Vietnam in 1920 or more than 90 years ago. Since then, we had moved out of Vietnam three times for different reasons, and the bank’s current presence is its fourth investment here. Today, we have two branches in Vietnam, one in Hanoi and one in Ho Chi Minh City.

The big capital increase that you mentioned reflects our strong commitment to Vietnam. In the short-term, we see the country is facing many difficulties, but we are optimistic about the country’s future in the long-term. With such a belief, our Tokyo Head Office decided to inject an additional capital of $100 million.

The total pledged foreign direct investment (FDI) inflows into Vietnam in 2012  were lower than 2011 by about 30-40 per cent. Nevertheless, the number of Japanese investors coming to Vietnam is increasing. In 2011, the number of Japanese-invested projects licensed in Vietnam was 208. In 2012 to the end of October, the number was up to 255.

Our goal is to be the most trusted bank in the world. Many Japanese companies are banking with our bank, and we try our best to provide them with our best banking services. Moreover, we focus on not only Japanese investors but also ones from other countries to provide the best services based on our wide global network.

How was Bank of Tokyo Mitsubishi UFJ’s business performance in 2012? Do you expect a better year in 2013?
The year 2012 was very challenging. Loan demand was very weak. We expected the economic crisis hit bottom, but the pace of economic recovery will be slow.

Please explain why you predict the pace of Vietnam’s economic rebound will be  slow?
Because of high level of non-performing loans (NPL) at banks and inventory in local market. From 2007, after Vietnam joined the World Trade Organization (WTO), a lot of direct investment capital flowed into the country from overseas. Also, until 2010, the credit growth rate in Vietnam was very high, about 30 per cent to 50 per cent a year. This pace of credit growth was much higher than the healthy one.

Because of these factors, together with higher foreign remittance from overseas, Vietnam exceeded its maximum capacity of risk control. In order to consume those strong demands, Vietnam had only one way, that was to import products from outside, to sell dong and buy foreign currencies for this purpose. As a result, it leads to high inflation and lower foreign reserves. It was a kind of vice-spiral.

To tackle this vice-spiral, the Vietnamese government and the State Bank made a very good decision in 2011 to curb strong demand and inflation with the introduction of Resolution 11. The State Bank achieved three goals: inflation under control, increasing foreign reserves, and lowering credit growth. Vietnam enjoyed a trade surplus in 2012. Because of the trade surplus, the foreign exchange market has been very stable. Thanks to these three improvements, S&P upgraded the long-term outlook of Vietnam from “negative” to “stable”.

So I think the worst time is over. But as a side-effect of the tightening policy, the macro-economy has been getting worse: many bankruptcy cases, lots of NPLs and a high level of inventory. That is the reason why Moody’s downgraded Vietnam’s sovereign rating from B1 to B2. These factors will make economic recovery slow.

What is your evaluation of opportunities for Japanese banks in Vietnam in the field of commercial and retail banking?
Because we’re a Japanese bank, we support our Japanese customers. But our customers are not only Japanese, but also American, European, Korean, Thai, Taiwanese, Singaporean and Malaysian companies as well as Vietnamese companies. Furthermore, we also would like to support the agriculture, export industry and infrastructure, like power plants and pipeline systems, etc. As such, given a diversified customer base, we are very optimistic about further growth in Vietnam.

What are your comments on the opportunities for foreign credit institutions to take part in the on-going restructuring of the Vietnamese banking system, for instance, in buying debts of debt-ridden Vietnamese banks or mergers and acquisitions (M&A)?
Investments into Vietnam banks is a wise and efficient way, in general, to get into the local market, especially at this moment when prices of local banks’ shares are getting reasonable. Business cooperation between foreign banks and local banks will be mutual beneficial to both sides. The foreign banks may utilise the nation-wide network of local banks to serve their customers. Meanwhile, the foreign banks can provide local banks with advanced risk control management system which they already implemented in the worldwide network, particularly in the area of governance, compliance, operations, credit risk and market risk control.