Exposure brings state-owned banks under scrutiny

Although Vietcombank and Vietinbank have already made initial public offerings and listed shares on the stock exchange, the nominally ‘joint-stock' banks continue to be substantially state-owned.

The central bank decision aims to gauge the progress of these banks to reorganise under a corporate model, as well as evaluate the role of state capital representatives in the management of the banks.

The banks have been ordered, as well, to reassess investments in core and non-core business lines, especially in stocks and real estate, with the reports due no later than next Tuesday, December 28.

The major state-owned banks have invested in a wide range of business sectors, including financial leasing, securities brokerage, investment funds, construction and property leasing, insurance and aircraft leasing, and are major sources of capital for state-owned enterprises.

For some of these banks, 30-40 per cent of their exposure is loans and investments in state-owned enterprises, many of which are financially weak and poorly managed.

Following the insolvency of state-run shipbuilder Vinashin, a number of global credit rating agencies have raised the alarm about the status of state-owned banks in Vietnam.

BIDV, the second-largest bank in the system with a 10.2-per-cent market share by assets, was downgraded last week by Moody's, dropping BIDV's financial strength rating to E+ (mapping to a BCA of B2) from E+ (mapping to a BCA of B1) with a stable outlook.

The downgrade was seen as partly a response to the troubles of debt-laden Vinashin, which is labouring under nearly $4.4 billion in debt.

The downgrade also took into consideration the risks in the country's weak operating environment, including the bank's poor – but improving – capital ratios, and its modest liquidity fundamentals.

Vietcombank, the first state-owned bank to make an IPO in 2007 but still 90-per-cent owned by the state, received a downgrade in September from Fitch Ratings, which lowered Vietcombank's individual rating from D to D/E.

The downgrade was said to reflect Vietcombank's substantially weakened balance sheet arising from excessively strong loan growth and the fragile quality of the loans.

In October, Standard & Poor's said that a wide disconnect existed between industry-reported nonperforming loan ratios and the true state of the system's asset quality. S&P rated Vietcombank BB/Negative/B and BIDV BB/Negative/B.

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