Banks want bigger foreign stakes

Monday, Sep 07, 2015 08:00

The bank now wants the Government to enlarge foreign ownership to 49 per cent. — Photo vietnamnet

Recently Vietinbank said the Government and the State Bank of Viet Nam should allow it to sell bigger stakes to foreign investors to make its offer more attractive for them.

It hopes that it would succeed in its quest and the foreign investors can buy 40 per cent of Vietnamese banks, double the old ratio.

ABBank has already increased the stakes held in it by foreign strategic partners to 30 per cent, with Malaysia's Maybank owning 20 per cent and the World Bank's IFC, 10 per cent.

The bank now wants the Government to enlarge foreign ownership to 49 per cent.

Earlier this year Saigon Commercial Bank decided to increase its chartered capital to over VND14.29 trillion (US$635.28 million), and sold over 15 per cent to foreign investors to realise this target.

The bank has revealed plans to increase its capital by a further VND1 trillion by year-end by selling more to foreign investors.

It is willing to sell bigger stakes to the foreign investors if allowed by the Government.

After selling a 40 per cent stake in its HDFinance to Japan's Credit Saison, HDBank is next considering selling stakes in itself to strategic foreign investors possibly from Europe, the US or Japan.

DongA Bank had been hoping to sell 49 per cent to foreign investors and increase its legal capital to VND10 trillion, but was forced to put the plan on hold after being placed under the State Bank of Viet Nam supervision recently.

Analysts said it is necessary for local banks to strengthen their capital base by raising funds from various resources, including foreign, to improve their finances and sharpen their competitive edge as the country integrates increasingly.

But foreign investors are not too keen to buy stakes in Vietnamese lenders since jointly their stakes are limited to 30 per cent in a bank and individually to 20 per cent, meaning often they cannot demand a role in the running of the banks.

The Government is considering changing the law to allow foreign investors larger stakes in its latest bid to rebuild a financial sector battered by bad debts.

A new decree would soon be issued to permit foreigners to buy stakes "over and above the current 30 per cent ceiling", a high-ranking Government official has said.

Currencies threaten balance

Over the last year the Russian ruble has fallen relentlessly against the US dollar. After losing 40.9 per cent it is down to 70.795 to the dollar on August 25 .

It is by no means the only major nation's currency to depreciate in recent times. The depreciation of other nations' currencies has had an impact on the Vietnamese economy by making its exports more expensive.

More importantly, it is sparking off "competitive devaluation", as economists label it, by creating pressure on China, Viet Nam's second biggest trading partner, and other Asian economies to follow suit. Viet Nam's trade balance faces a threat in this scenario.

Analysts say however the ruble slump does not have a big impact on Viet Nam since Russia only accounted for 0.8 per cent of the country's exports and 0.38 per cent of imports in the first half of this year.

Viet Nam's imports from Russia are much higher than its exports to that country and so the ruble's fall is working to the former's advantage since imports are cheaper.

Seafood companies could have been hurt if only their products had not been banned by Russia in 2013. The ban means Russia is not even among the top eight largest markets for Vietnamese seafood.

According to the Viet Nam Association of Seafood Exporters and Producers, Russia now buys a mere 1 per cent of Vietnamese seafood exports.

China's move to devalue the yuan by 4.6 per cent in mid-August could, on the other hand, have more serious consequences for Viet Nam's economy. China is Viet Nam's third largest trading partner and so a weaker yuan would have made the former's exports to Viet Nam even cheaper, possibly sparking off a flood of imports.

This would possibly have had greater ramifications — Vietnamese firms would have considered it futile to spend money to increase the rate of local content in their products. And a low rate would have meant no preferential tariffs while exporting under FTAs and the Trans Pacific Partnership.

As for Vietnamese exports, China is a major buyer of farm produce, which would have become more expensive.

Analysts said considering these factors the State Bank of Viet Nam had little choice but to devalue the dong by 3 per cent and increased the foreign exchange daily trading band from +/-1 per cent to +/-3 per cent.

There have been fears that a weaker yuan would not only affect trade between Viet Nam and China and Viet Nam's financial markets, but also have a significant impact on its real estate market.

Some said it could cause difficulties for real estate companies.

This has been dismissed, with many pointing out that the housing market would not be affected since it is funded mainly by domestic players. Foreign investors only account for 10 per cent of the funding.

It is also a fact that property prices in Viet Nam have for years been affected mainly by supply and demand and little correlation has been found with exchange rates. In the last five years the dong has lost 0.9-5.8 per cent every year, while Ha Noi apartment prices have moved by 13 per cent to minus 11 per cent.

According to property consultant CBRE, the prices of the housing projects that are under construction will not be affected much by the exchange rates since most of the required building materials had been imported before the devaluation.

But it could be different story when it comes to future projects, it warned. — VNS

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