Commercial banks need equitisation


HA NOI — Bankers and their regulators met yesterday to discuss ways to raise foreign direct investment in the banking sector, with most agreeing that an immediate equitisation of State-owned commercial banks would give the slugglish sector a financial kick-start.

Nguyen Hoang Hai, general secretary of the Viet Nam Association of Financial Investors, said that State-owned commercial banks should move quickly to value their uncollectable loans and total assets in order to take the necessary steps towards equitisation.

Hai suggested that bank assets could be assessed more quickly using the Discounted Cash Flow (DCF) method. After the banks have been restructured and equitised, they can mobilise capital easier through stock exchanges, he said.

The Government, Hai said, should allow interested Vietnamese investors to hold more than 30 per cent of a State-owned commercial bank’s net equity and foreign investors more than the 10 per cent of net equity capital they are currently allowed to hold.

His recommendations received considerable support from participants at yesterday’s meeting which was hosted by the Viet Nam Chamber of Commerce and Industry.

Lam Quynh Anh of the law firm of Freshfields Bruckhaus Deringer said the 10 per cent limit on foreign holdings has prevented large foreign investors from investing in smaller local banks.

"Investors are unwilling to put their money in loss-making banks or banks in the red because the 10 per cent stake limit doesn’t give them any decision-making power to do the necessary restructuring," Anh said. As a result, the banks which are on the edge of bankrupcy suffer further disadvantages in the Vietnamese market, she added.

There are currently a handful of local banks with shares owned by such foreign investors as the International Financial Corporation, Standard Chartered Bank and Dragon Capital.

However the State Bank of Viet Nam is now preparing a draft regulation to replace Decision 228 which governed foreign investment in Viet Nam commercial banks since 1993.

Economists said changes to Decision 228 were necessary, since it pre-dates adoption of the Law on Credit Institutions in 1997.

Dr Le Xuan Nghia, director of the State Bank of Viet Nam’s Development Strategies Department, said that the banking sector is already undergoing a critical period of reform. The reform programme aims to mobilise all possible financial sources and set up a group of strong and effective commerical banks that are able to compete both locally and internationally.

Nghia said the reform plan’s initial phase would focus on tackling bad loans of State-owned commercial banks and giving them more autonomous power in their operations.

The programme will also build a more effective inspection system based on more credible auditing work.

On top of that, SBV is also considering whether to shift from Viet Nam Accounting Standards (VAS) to International Accounting Standards (IAS).

Joint stock commercial banks will also go through a thorough restructuring, and those that fail to work to an effective standard will be merged with other institutions or have their licences revoked, Nghia said. — VNS