Investors should be wary of investing in bank shares as the industry faces potential shake-ups in the near future.
State Bank of Vietnam (SBV) Deputy Governor Dao Minh Tu said efforts are being mounted to deal with underperforming banks and put the banking system back on track.
A member of the National Financial and Monetary Advisory Council Dr. Tran Du Lich noted that small, weak banks could undermine banking sector performance.
The ratio of non-performing loans (NPL) has escalated in recent years and now poses a threat to the balance of the banking sector. Most of these are traced back to small banks that failed to effectively manage and secure their lending.
Industry experts understandably forecast that bank share values would reflect banks’ debt settlement policies.
They were right, as the share prices of some smaller banks have fallen to below VND10,000 per unit and are expected to continue dropping as the banks face mounting merger and restructuring pressure.
“M&A is a long-term process, and investing into bank stock is a risk best not taken by short-term investors. Long-term investors, on the other hand, should evaluate factors like growth strategy and cultural affinity between the two involved businesses before risking capital,” said the director of a Hanoi-based securities company.
That director also explained that a likely radical restructuring of the banking system is going to necessarily mean great difficulties as state asset management firm VAMC, tasked with cleaning up bad debts, has yet to produce any concrete results.
In the first half of this year, most banks lost money, and mostly because they had to scale up loan loss provision capital.
A recent survey of 33 local commercial banks conducted by law firm KPMG Vietnam, showed that most bank leaders were in agreement with government restructuring efforts.
A part of this would be to limit the number of underperforming credit institutions by merging them into fewer large banks with more resources and stronger performance.
These efforts had posted initial encouraging results. Accordingly, three banks, Saigon Commercial Joint Stock Bank, Ficombank and TinNghiaBank, were merged into one institution; Habubank was merged with Saigon Hanoi Bank; a cooperative deal was struck between Sacombank and Eximbank, and most recently PetroVietnam Finance Corporation (PVFC) merged with Western Bank to form PVcombank.
Bank restructuring would provide opportunities for foreign investors to become strategic shareholders in local banks.
As such, the government is considering allowing foreign companies to buy stakes of above 30 per cent against current cap of 20 per cent in special cases.