In July 2011 E-Mart, South Korea's top discount store chain, signed an agreement with Viet Nam's U&I Investment Corporation to form a distribution joint venture in the country.—VNS File Photo

(Biz Hub) In July 2011 E-Mart, South Korea's top discount store chain, signed an agreement with Viet Nam's U&I Investment Corporation to form a distribution joint venture in the country.

E-Mart Vietnam was expected to be capitalised at US$80 million, with 80 per cent brought in by E-Mart and the rest by U&I.

The JV was expected to expand to 52 outlets by 2020 at a total cost of $1 billion.

Then, last year two Japanese retailers, Aeon and Takashimaya, also entered the Vietnamese market. Aeon has already begun construction of two large retail centres in HCM City and Binh Duong Province: Celedon and another shopping mall.

It has also tied up with the Trung Nguyen Group to open 13 convenience stores in HCM City.

Takashimaya has leased 15,000 square metres in Sai Gon Centre in District 1 to open an outlet in 2015.

Besides the newcomers, major foreign retailers already having a presence in the Vietnamese market – like Metro Cash & Carry, Big C, Lotte, and Parkson – are also investing to expand distribution networks and open new outlets.

Metro, for instance, hopes to open 30-35 outlets in three to five years in addition to the 17 it already has.

A source said French retailer Group Auchan plans to return to Viet Nam and invest US$500 million within 10 years after its business has been interrupted for several years.

The presence of more and more foreign retailers in recent years is churning the market.

Joining the World Trade Organisation five years ago has benefited Viet Nam in many ways: Gross Domestic Product has risen by nearly 2.3 times in the period, and GDP per capita by two times. Exports are up three-fold, and Viet Nam ranks among the world's top 15 countries in attracting FDI.

But the benefits have not been uniform.

The domestic retail sector is among those most affected adversely by the country's accession to the WTO.

Though domestic retailers may dominate the market in terms of number of outlets, they face many problems like small size of market, low demand, and the dominance of traditional markets, which account for nearly 80 per cent of retail revenues.

The retail industry lacks a cogent development strategy or professionalism, especially in management, and human resource quality is not high.

Other problems that make it difficult for domestic retailers and distributors are unfair competition, poor infrastructure, and outdated technologies.

Meanwhile, their international competitors have greater experience in management and logistics, professionalism, and deep pockets, which allow them to withstand initial losses.

The battle between local and foreign retailers actually began last year when foreign businesses were allowed to distribute all products.

Consequently, domestic distribution channels are being taken over by foreign retailers.

According to forecasts, retail sales will increase 23 per cent a year from now through 2014.

Thus, it is essential for domestic retailers to improve their competitiveness to get back their market share.

They also need to strengthen the links between manufacturers and distributors to support brand development and protection.

It is crucial for authorities to take measures to protect domestic distributors and retailers in accordance with WTO commitments, build a healthy competitive environment, and prevent abuse of transfer pricing and price undercutting.

The allocation and lease of land to domestic retailers should be transparent to create favourable conditions for them to get access to suitable sites to develop their business.

Banking upheaval

The banking sector is witnessing some major changes this year with mergers and acquisitions taking centre stage.

At their annual general meetings this year many banks discussed M&A- related issues, which promise to add impetus to the industry's ongoing but snail-paced restructuring process.

They included Military Joint Stock Commercial Bank, HCMC Development Joint Stock Commercial Bank (HDBank), DaiA Joint Stock Commercial Bank, Sai Gon Thuong Tin Joint Stock Commercial Bank (Sacombank), Export and Import Joint Stock Commercial Bank (Eximbank), Maritime Commercial Bank (MaritimeBank), and Southern Commercial ank(SouthernBank).

At HDBank's meeting last month shareholders approved plans to acquire a consumer finance company and also considered a plan to take over a commercial bank.

The merger between HDBank and DaiA has been approved in principle by the central bank.

Military Bank is also looking for a merger candidate. A few banks have evinced interest in the merger but none meet the former's stringent criteria including healthy finances, good administration, and low bad debts.

At its AGM this year, Maritime Bank's shareholders approved a proposal to buy stakes in other credit organisations.

DongA has a potential merger plan approved by its shareholders last year and is considering several banks.

For Eximbank, Viet Nam's eighth largest lender by assets, merger is the shortest route to expansion considering the central bank's tough regulations on opening branches and expanding operations.

A number of small lenders are looking at mergers as a way to avoid being eliminated from the marketplace.

Partly private Phuong Tay Bank (Western Bank) and Petrovietnam Finance Corp – owned by the state oil giant – have completed the formalities for their merger.

M&A is an important tool in the banking industry's restructuring process since it can help reduce the number of banks, expand the remaining ones, and improve their service quality.

It is also part of the State Bank of Viet Nam's scheme to restructure lenders saddled with bad debts.

An SBV source said around 10 banks would be restructured this year.

But the restructure plan is not progressing at any pace. Of the nine ailing lenders identified early last year only four have been restructured so far.

The mergers are expected to accelerate the restructuring process, enabling the banking system to develop sustainably and meet global competitiveness requirements.

Firm to buy bad debts

The Viet Nam Asset Management Company is likely to be created this month to take over bad debts from banks.

The VAMC, which will be directly controlled by the State Bank of Viet Nam, will be capitalised by the Government at VND500 billion (US$24 million).

The VAMC will trade the bad debts after buying them by paying their book value.

A recent draft decree says nearly its entire capital requirement will be met by issuing bonds to the banks in place of their bad debts.

Its bond will have a tenor of five years and carry a coupon rate of zero per cent. During this period the banks will have to make an annual provision of 20 per cent of the value of the debts they sell to the VAMC.

The VAMC will liquidate the debts in various ways – by using them as security, turning them into equity, auctioning them, and selling off the assets mortgaged by the borrower.

The VAMC is expected to help settle the bad debts problem if the Government manages to develop the debt market. — VNS