Incombank set to enjoy loan privilege

Credit-thirsty EVN needs to satisfy growing demand for power

In a letter sent to the prime minister last week, the State Bank deputy governor Phung Khac Ke requested permission from the government for the state-owned Industrial and Commercial Bank of Vietnam (Incombank) to lend the 500KV electricity line project more than 15 per cent of its equity.
The current credit law states that a bank may not lend a single client more than 15 per cent of its equity to ensure an adequate capital ratio for the bank.
With an equity of VND3 trillion ($191 million) as to the end of October, Incombank therefore can only provide a maximum of $28.65 million, while it has agreed with EVN to supply a credit line of $40.7 million.
The 500KV electricity line project, solely developed by the state-run EVN, is designed to build two separate power transmission lines from the Central Highlands city of Pleiku to the central city of Danang, and from Danang to Ha Tinh, 350 km south of Hanoi.
Approved by the government in January last year, the project has not been able to break ground yet due to the difficulties in capital mobilisation although the project was evaluated by the governmental appraisal board as a profitable project that would generate a high return-on-investment.
Out of the $237-million capital needed for the project, the electricity conglomerate plans to borrow as much as VND700 billion or $44.5 million from commercial banks. The rest will be sourced from the equity of the corporation.
Two banks including the state-owned Incombank and the joint-venture Indovina Bank have agreed to jointly-finance the project with credit amounts of VND640 billion ($40.7 million) and VND40 billion ($3.8 million) respectively.
Unfortunately, the lending limit is preventing Incombank from disbursement of the promised fund.
Deputy governor Phung Khac Ke cited this power project is one of the key national projects to improve the local infrastructure and as such he believed the prime minister would agree to offer special privileges to Incombank as requested.
If approved, EVN’s power project will be the second one to be granted this privilege by the government in just two months.
Last month, the Binh Phuoc Cement Factory project of the Ha Tien cement company was offered the same preferential terms by Incombank.
While the intervention of the government might help the giant electricity company salvage its power project, some issues have been raised with regards to the matter of banking rules enforcement and the soundness of the banking system.
In its banking review issue recently, the World Bank has seriously raised a question over the supervision role of the State Bank in Vietnam.
“Lending limits, capital levels and operating guidelines are provided to banks as a means of setting a standard by which they can all be judged. [Therefore] allowing exceptions or offering forbearance will destroy the value of the rules and weaken the system,” according to the World Bank’s review.
“It leaves those who view themselves as having some influence as feeling that they are above the rules and can act as they choose knowing an exception of forbearance will be granted. This discourages all banks from properly functioning within the set guidelines,” it also said.
Putting aside the problem relating to the rule abuse, too many exceptions being granted might lead to high risks and less liquidity for the banking system.
If Incombank was given a green light on the 500KV power lines project, it would mean one of the four biggest financial houses in the country will have recorded debts of VND2.7 trillion ($176 million) solely owned by EVN, equal to 95 per cent of the bank’s total equity.
But if this conglomerate went bankrupt, it would be a prospect no one would even dare to imagine.