Banks willing to take risk, move abroad

Monday, Feb 15, 2016 08:11

The bank has a charter capital of $50 million and a branch in Champasak besides the main office in Vientiane.— Photo

The Ha Noi-Sai Gon Commercial Joint Stock Bank (SHB) opened its fully-owned SHB Bank Limited in Laos in mid-January by upgrading the transaction office it had set up in 2012.

The bank has a charter capital of $50 million and a branch in Champasak besides the main office in Vientiane.

SHB is the third Vietnamese bank to enter Laos after Vietinbank and Sacombank.

SHB Bank Limited has ambitious plans over the next five years: 15 transaction points, branches and offices; over 300 highly skilled staff and gross profit of $9.15 million.

SHB is just one of five banks to have branches overseas, with Vietinbank, MB and HDBank being the others.

Many Vietnamese banks have been scrambling to open branches in other countries to improve their competitiveness and help Vietnamese companies do business overseas, a growing trend in recent years.

They began overseas investments in 2008 in various forms including joint ventures.

The Lao Viet Nam Joint Venture Bank (Lao-VietBank) was jointly established in Vientiane in 1999 by the Bank of Investment and Development of Viet Nam and the Lao Foreign Trade Bank.

In 2008 Sacombank got approval from the State Bank of Viet Nam to open branches in Laos and Cambodia, becoming the first Vietnamese lender to go overseas.

The same year Sacombank also opened a representative office in China's Nanning city.

Then it was the turn of Agribank, which entered Cambodia with a branch in Phnom Penh in 2010.

In 2011 Vietinbank became the first Vietnamese bank to set up operations in Germany. The bank also opened a branch in Laos, and has plans to expand into places like Savanakhet, Bolikhamsay, and Luang Prabang.

After getting approval from the State Bank of Vietnam, HDBank is wrapping up procedures for opening a representative office in Myanmar.

Of the Asian countries that Vietnamese banks are investing in, Laos may be the most attractive due to several reasons, one of which is the presence of many Vietnamese companies there. Viet Nam is now Laos' second biggest foreign investor with $5.22 billion in 261 projects.

Besides, trade between the two countries is growing at 24 per cent a year though admittedly from a small base. Last year it was worth $2 billion.

Cambodia is Vietnamese lenders' second preferred destination. Viet Nam is the fourth biggest investor in Cambodia with 129 projects mainly in rubber farming, healthcare, telecom, aviation, and mining.

Bilateral trade was worth over $3 billion in 2014, with Vietnamese exports accounting for $2.66 billion.

Myanmar also promises to be an attractive place for investors, particularly for Vietnamese companies that are already doing business in the country.

Because of this, not only HDBank but also a number of other lenders are eyeing Myanmar, with BIDV and Vietinbank already getting licences from authorities there.

Speaking about Vietnamese banks' investments in Asian countries, analysts said this would help them access new markets and opportunities and diversify their products while enabling Vietnamese companies also to enter those markets.

But they also warned that going abroad often entails big investments, which could possibly affect their core operations at home.

So the central bank should keep a close eye on the financial capacity of banks investing abroad to mitigate risks for themselves but also their customers. Banks should improve their overall risk management systems, they said further.

But the bottom line is this: Investing abroad is always a risky business, particularly in a sensitive area like banking. However, Vietnamese banks must be ready for the risks since the country is integrating deeply into the global economy.

Restructuring securities

On January 20 the State Securities Commission issued a certificate of operation to Phuc Hung Securities Corporation (PHS) after it acquired Ha Noi-based An Thanh Securities Company.

It now has a charter capital of VND202.5 billion (US$9.1 million).

Before the acquisition, PHS had a charter capital of VND347 billion and An Thanh, VND41 billion.

The company is thought to have improved the quality of its assets, creating a firm foundation for it to participate in new segments such as derivatives in the coming time.

A SSC spokesperson said the takeover of An Thanh, the fourth such transaction in the securities industry, was part of the stock market restructure process.

In 2012 the Prime Minister issued a decision on the restructure of the securities and insurance markets.

The restructuring was aimed at gradually enhancing the role and position of the securities and insurance markets, creating a vital source of medium- and long-term funds in the economy and enabling the restructure of credit institutions.

It was also aimed at providing consumers with a diverse range of goods and services and ensuring transparent and professional corporate governance.

The securities market is in fact being restructured rather comprehensively and simultaneously in multiple areas.

The structure of brokerages and the securities market are also being revamped in various ways.

As a result, in 2011-15 the SSC reduced the number of brokerages by 25 to around 300.

Analysts say thanks to the restructuring much improvement can be seen in the financial status and liquidity of securities companies.

For instance, short-term assets now make up 84.93 per cent of their assets, 8.93 percentage points higher than in 2011.

Their combined equity has increased by 20 per cent since 2014.

The number of profitable firms has increased by 30 per cent and their total after-tax profit was over VND2.2 trillion.

But analysts say it is necessary to accelerate the restructuring of the stock markets by introducing derivatives and diversifying their products to attract more foreign investment in securities companies as well as stocks.

Local brokerages remain modest in size, with only listed ones having a market cap at over $1 billion.

Last year only three companies had a daily turnover of $5 million, while 13 did business worth $2-5 million and 12 firms did $1-2 million.

To improve things, experts say more foreign investment is required in brokerages, and this could be achieved by speeding up equitisation of major State-owned enterprises since foreign portfolio investors prefer such companies. Foreign portfolio investors look for large companies with good management, transparent business information, and high foreign ownership ratio besides economic and exchange rate stability.

According to the SSC, this year the restructuring of securities firms will be accelerated, derivatives will be launched and the Ha Noi and HCM City stock exchanges will be merged. — VNS

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