Vinase
16-08-2008, 10:14 PM
Executive Summary
As detailed in this report, loan growth for Vietnam’s banks has been very strong
over recent years at around 30% p.a. (53% in 2007) as a result of rapid economic
growth, particularly for private businesses and consumers as the country has
transformed itself towards being market‐oriented rather than being oriented
towards central planning. In this environment, opportunities have been especially
plentiful for Vietnam’s c.36 smaller but more commercially‐driven private banks. As
such, they have been growing very rapidly and now account for around 30% of the
system assets versus around 60% for Vietnam’s five main state‐owned commercial
banks (or SOCBs) which have historically dominated the system. A handful of foreign
banks have also been gaining market share. That said, long‐standing efforts to
render the SOCBs more commercial are beginning to bear fruit and will be further
aided by the introduction of major international banks as strategic foreign
shareholders and public listings as planned for the next year or so.
In the more immediate future, Vietnam’s banks face a particularly challenging
environment, due to sharply higher interest rates and much tighter liquidity, as
belatedly imposed by the central bank recently to combat the sharp increase in
inflation — rising to 25% in May 2008. If this environment continues, it is likely to
result in borrower stress and higher credit costs. In this regard, the private banks
are most exposed, given their rapid loan growth over recent years, particularly to
the extent that such lending has been to property developers, with property prices
reportedly falling somewhat over 2008 after rising rapidly in 2007. Fitch Ratings
notes that credit costs relating to stock market investment loans is also a concern,
given a collapse in local stock prices over the past year. That said, the loan growth
for the larger of the private banks that Fitch covers, while rapid, has generally
been towards the sounder areas of the economy such as traders, manufacturing and
well‐secured residential mortgages. Meanwhile, their securities lending has been at
relatively low loan‐to‐value ratios with negligible losses. Whether the smaller
private banks have been as prudent is unclear, due to limited transparency, which
is a particular concern, given that the regulatory and supervisory regime is not
strong. Notably, some smaller private banks have reportedly been experiencing
liquidity problems recently and have had to be supported by the SOCBs and
ultimately the central bank. And while this can be partly attributed to policy
actions 1 , it nevertheless highlights weaknesses in the system that the authorities do
need to address.
Beyond these immediate concerns, over the medium‐ to longer term, Vietnam’s
banking sector should continue to offer good opportunities to its more
commercially‐oriented prudent operators, due to ongoing robust economic growth.
This is particularly so in regards to the larger private banks, most of which have
already secured a major international bank as a strategic foreign investor.
As detailed in this report, loan growth for Vietnam’s banks has been very strong
over recent years at around 30% p.a. (53% in 2007) as a result of rapid economic
growth, particularly for private businesses and consumers as the country has
transformed itself towards being market‐oriented rather than being oriented
towards central planning. In this environment, opportunities have been especially
plentiful for Vietnam’s c.36 smaller but more commercially‐driven private banks. As
such, they have been growing very rapidly and now account for around 30% of the
system assets versus around 60% for Vietnam’s five main state‐owned commercial
banks (or SOCBs) which have historically dominated the system. A handful of foreign
banks have also been gaining market share. That said, long‐standing efforts to
render the SOCBs more commercial are beginning to bear fruit and will be further
aided by the introduction of major international banks as strategic foreign
shareholders and public listings as planned for the next year or so.
In the more immediate future, Vietnam’s banks face a particularly challenging
environment, due to sharply higher interest rates and much tighter liquidity, as
belatedly imposed by the central bank recently to combat the sharp increase in
inflation — rising to 25% in May 2008. If this environment continues, it is likely to
result in borrower stress and higher credit costs. In this regard, the private banks
are most exposed, given their rapid loan growth over recent years, particularly to
the extent that such lending has been to property developers, with property prices
reportedly falling somewhat over 2008 after rising rapidly in 2007. Fitch Ratings
notes that credit costs relating to stock market investment loans is also a concern,
given a collapse in local stock prices over the past year. That said, the loan growth
for the larger of the private banks that Fitch covers, while rapid, has generally
been towards the sounder areas of the economy such as traders, manufacturing and
well‐secured residential mortgages. Meanwhile, their securities lending has been at
relatively low loan‐to‐value ratios with negligible losses. Whether the smaller
private banks have been as prudent is unclear, due to limited transparency, which
is a particular concern, given that the regulatory and supervisory regime is not
strong. Notably, some smaller private banks have reportedly been experiencing
liquidity problems recently and have had to be supported by the SOCBs and
ultimately the central bank. And while this can be partly attributed to policy
actions 1 , it nevertheless highlights weaknesses in the system that the authorities do
need to address.
Beyond these immediate concerns, over the medium‐ to longer term, Vietnam’s
banking sector should continue to offer good opportunities to its more
commercially‐oriented prudent operators, due to ongoing robust economic growth.
This is particularly so in regards to the larger private banks, most of which have
already secured a major international bank as a strategic foreign investor.