Small banks facing a rougher road ahead

Investors are no longer thinking big about small banks

In the latest move, CMC Corporation - a local leading IT-Telecom company, has announced its plan to withdraw its investment from BaoViet Bank.

On December 29, 2010, CMC Corporation’s board of directors decided to sell its holding in the bank “at an appropriate time”. The corporation currently holds a 9.9 per cent stake in BaoViet Bank’s VND1.5 trillion chartered capital.

Le Tham Duong, head of Ho Chi Minh City Banking University’s Business Management Faculty, said small bank shares had lost their appeal.

“Buying stake in small bank as an investment is less attractive now as banks would massively issue additional shares in the coming time. Thus, even in 12 months, increasing chartered capital via issuing additional shares would still be a difficult task for small banks,” said Duong.

According to Decree 141/2006/ND-CP, by the end of 2010, all banks must have a minimum chartered capital of VND3 trillion. However, in late December 2010, the government gave a 12 month extension. Currently, more than 20 banks are running with chartered capital under VND3 trillion.

Le Thanh Son, chief financial officer of CMC Corporation, said the company set a plan to strongly focus on its core business of information technology and telecoms.

“Thus, this withdrawal would help mobilise more funds for our core business development,” said Son.

Earlier in December 2010, Vinatex stepped away from Navibank. State Bank governor Nguyen Van Giau revealed that the government opted not to allow state-owned corporations to invest more cash into banks.

“That is why we gave local banks 12 month extension en route to hiking chartered capital to a minimum of VND3 trillion ($150 million). In detailed plans of banks to hike chartered capital, many have to rely on their major shareholders who are state-owned corporations,” said Giau.

Currently, of the 20 banks with chartered capital under VND3 trillion level, Bao Viet Bank’s major shareholder is Bao Viet Group, Ocean Bank with Petro Vietnam, Navibank with Vinatex, Maritime Bank with VNPT. All these shareholders are large-scale state-owned corporations.

On the other side, Giau said that the State Bank would favour a merger and acquisitions window to strengthen the system.

“If three or four banks submitted  their plans to merge, the State Bank would welcome and provide full support to this process,” said Giau.