The pace of activity in Vietnam’s normally sedate banking sector was unusually rapid in 2005, and it appears that 2006 will be no different. Driven in large part by Hanoi’s pursuit of World Trade Organisation (WTO) membership, all the relevant actors anticipate that a markedly liberalised financial services sector is imminent, and have begun preparing themselves accordingly.
Regulators have been relaxing some banking sector rules and state-owned commercial banks have been making tentative steps towards their first public share sales, while local private banks have been trying to expand their capital, capacities, brands and branch networks. For their part, foreign banks have been jostling for position in an economy that has begun to burgeon.
In the first few days of January, HSBC signed a technical assistance agreement with local Techcombank, which envisages the former taking a 10% strategic stake in the latter. Under existing laws, no more than 30% of total equity in a local bank may be held by foreign institutions, with no single foreigner holding more than 10%. Local press reports suggest that HSBC paid a substantial premium to the price at which Techcombank’s (unlisted) shares trade on the informal market.
Mutually beneficial
HSBC’s move follows closely behind two similar share acquisitions in the latter half of 2005, when ANZ Bank bought into Saigon Thuong Tin Bank (Sacombank), and Standard Chartered Bank took a stake in Asia Commercial Bank (ACB). The mutual attractions of such arrangements are clear: foreign banks are able to distribute their financial products and services through local banks that enjoy far fewer restrictions than their own few branches. Local banks, meanwhile, can benefit from the expertise and technology that the international banks have to offer.
More such deals in 2006 seem likely, although one could argue that the three local banks to have led the way are currently the most attractive among Vietnam’s mixed array of private banks. While Sacombank and ACB – both headquartered in Ho Chi Minh City – have long been regarded as the strongest private banks in Vietnam, Hanoi-based Techcombank has rapidly risen in stature in the past five years or so, under the capable direction of CEO Nguyen Duc Vinh. Techcombank is reported to have made pre-tax profits of around $17.8m in 2005.
Revived fortunes
Another private bank that may come under increased attention as a potential investment target for a foreign institution is the revived Vietnam Bank for Private Enterprises (VP Bank). Having badly lost its way in the mid-1990s, almost to the brink of collapse, VP Bank is now on the rise again, and already has foreign investors on its board.
Sacombank has already announced that it will seek to raise its capital base in the first quarter of 2006 in a bid to remain the largest single private bank in Vietnam. It is anticipated that its foreign shareholders – ANZ Bank, the International Finance Corporation (IFC) and a Vietnam-oriented investment fund – will participate in the share sale, in order to keep their existing stakes at the same level. Reporting pre-tax profits of $18.1m in 2005, Sacombank also aims to be the first local bank to list its shares on the fledgling stock market during 2006. ACB reported pre-tax profits of $24m in 2005, and is also seeking to list on the bourse, which currently hosts 33 listed firms.
Banks are not the only ones investing vigorously in Vietnam. Investor sentiment towards the country has risen to new highs in recent months, as indicated by marked increases in foreign direct investment inflows (both pledges and disbursements). For portfolio investors, a number of new country funds have been established, while some existing funds have enacted additional share issues.
Issuance success
Perhaps the most striking recent event was the successful launch of Vietnam’s long-awaited inaugural sovereign bond issue. Initially aimed at raising $500m, the issuance was subsequently revised up to $750m, and some reports indicated that there was enough interest in the bonds to have sold them about six times over. Serving as a benchmark, this paves the way for future corporate bond issues by some of Vietnam’s larger state-owned corporates, a number of which need long-term capital to invest in critical sectors, such as transport, telecommunications, energy and banking.
In marked contrast to the heady pace of activity in the private banking sector, restructuring in the much larger state-owned commercial banks remains slow. Partial divestment plans for mighty Vietnam Bank for Foreign Trade (Vietcombank) have only inched forward, and this is now more likely to proceed, at least initially, as a convertible bond or preference share issue. The partial divestment of (much smaller) Mekong Housing Development Bank (MHB) may be quicker. No firm dates have yet been set for Vietnam’s other state-owned banks, BIDV, Agribank and Incombank.
A day after the HSBC-Techcombank deal was announced, it was also revealed that Vietnam had accepted to be bound by Article VIII (sections 2, 3 and 4) of the International Monetary Fund’s (IMF) Articles of Agreement. As such, the country is committed “not to impose restrictions on the making of payments and transfers for current international transactions, and not to engage in… any discriminatory currency arrangement or multiple currency practice, except with IMF approval”.
