Finance firms weigh up contrasting futures

According to the government’s state owned enterprises and state groups restructuring plan, state groups and corporations will have to entirely withdrawn investments from non-core businesses by 2015, particularly financial investments.

This means that within the next three years, financial businesses are likely to have to consider mergers with commercial banks, strictly adhere to international standard financial company operational models or shut down entirely.

“Except for the PetroVietnam Finance Corporation PVFC and EVN Finance JSC, local financial businesses are mostly minuscule, with chartered capital in just the tens of millions of US dollars. For many small firms, ending operations probably makes the smartest sense,” said investment and advisory section head Vu Hoang Chuong at EVNFinance.

Dr. Nguyen Thac Hoat, an expert from Ministry of Planning and Investment’s Policy and Development Academy argued that Vietnamese financial companies should be restructured in order to adopt international standards of operation.

“Financial firms are there to support manufacturers and distributors through procuring hire-purchase sale contracts, providing personal loans or rendering credit through debt purchases etc.,” said Hoat.

Economic experts agreed that merging financial companies into banks would not necessarily be an optimal solution, due to the fact that they clearly have different operational targets.

However, it remains the case that most financial firms are continuing to struggle, with PVFC proving the exception with rumours circulating that the finance corporation is about to merge with a bank.

Until late last week, PVFC had yet to affirm its merger with a joint stock bank. However, a source close to PVFC said the merger would be inevitable.

Theoretically, the merger would help both sides make the most of each other advantages. However, the bank would likely later face numerous hardships in the post-merger period when two different entities converge under one roof.

Industry experts believe the merger would be the most viable way for PVFC to continue operations, with the financial company reporting over VND93 trillion ($4.4 billion) in total asset value and VND6 trillion ($285 million) in chartered capital, since it would help the firm extend the scope of their currently limited operations.

Former State Bank chief and chairman of the Small and Medium Sized Enterprises Association Dr. Cao Si Kiem said merging with a bank to operate under the commercial bank model would be a viable restructuring move for financial businesses, but few financial firms were capable. PVFC and EVNFinance remained prime candidates for such a merger due to their financial scope, dwarfing their smaller, less efficient rivals.