PVFC might use Western Bank as a bridge to change its status

Local media reported that the finance company (PVFC) was in talks with Western Bank last week to buy a controlling stake in the bank. A PVFC spokesman declined to comment on the information  when contacted by VIR.

The news, however, did not surprise the market as it had been rumoured for a number of months.
“Indeed speculation about this deal has been common currency for several months already,” Ho Chi Minh City Securities stated in a note to  clients last week.

“Buying a bank is the best way of doing that as the State Bank of Vietnam is clearly not going to issue new banking licences anytime soon,” the leading local brokerage house added.

Western Bank, a fairly small scale bank, is a within-the-reach target for PVFC. The bank has total assets of just VND20.6 trillion ($995.2 million) and equity of just VND3.1 trillion ($149.8 million) by the end of 2011, a several times lower scale compared with PVFC’s.

If the deal happens, PVFC’s total assets will be nearly VND110 trillion ($5.3 billion) and its equity will be of some VND10 trillion ($483.1 million), a scale that can put the company in the top end of the middle group of commercial banks.

Western Bank has close connections with the well-known financier Dang Thanh Tam, who owns another commercial bank NaviBank and several real estate units. Three out of five Western Bank  board members are key leaders of Tam’s real estate company Kinh Bac City Development Share Holding Corp. Kinh Bac holds 25 million shares or a 8.4 per cent stake, which has a par value of VND265 billion ($12.8 million), in Western Bank. The real estate market’s downturn has pushed Kinh Bac into continuous losses, sparking speculation that Tam might divest some of his assets.

Nguyen Thi Thanh Nga, an analyst for Vietcombank Securities, wrote in a July report that “there is rumour” that Kinh Bac might transfer all stake in Western Bank to another partner and considered the move as “help improving its cash position and reduce its debt ratio.”

However, PVFC shareholders are not charmed by the deal. PVFC shares gained only 3.3 per cent last Wednesday August 15 on the Ho Chi Minh Stock Exchange, the day the news spread, and soon fell back 0.8 per cent in the next day, on the back on fears about Western Bank’s true financial position.

Western Bank is classified as a weak bank with observers unsure about its true level of non-performing loans (NPLs). Although the bank posted a NPL ratio of just 1.2 per cent, it showed massive risky and hard-to-assessed investments.

According to the creditor’s 2011 consolidated financial statement, some 30 per cent of its assets was related to securities and real estate investments. Those investments include bonds worth VND1.5 trillion ($72 million) in Kinh Bac City Development Share Holding Corp. (KBC).

PVFC itself has some financial problems. The company posted second-quarter profit at lowest level since 2010, with securities investments making losses for six straight quarters.

PVFC has VND1.1 trillion ($53.1 million) outstanding loans to some of Vinashin’s units, VND1.7 trillion ($82.1 million) loans to some of Vinalines’ units and those loans have not yet had loss provisions. Nearly half of  PVFC’s mobilising and credit operations are for arranging capital for the units of oil and gas giant PetroVietnam.

“In terms of scale of assets, equity, mobilisation and credit, PVFC is on a par with mid-scale commercial banks. But in terms of business efficiency, PVFC is far below the common level of commercial banks,” stated BIDV Securities in a June report.