The Manila-based Asian Development Bank (ADB) may be targeting OceanBank for a buyout as the Vietnamese government is calling for foreign investment in the local banking system, the Dau Tu (Investment) newspaper cited an economist as saying.
Among the three lenders bought by the State Bank of Vietnam
(SBV), the country’s central bank, Hanoi-based OceanBank seems to be the most attractive option.
After being acquired by the SBV in April 2015, OceanBank has had its undistributed loss cut by nearly a half to five trillion dong ($220 million) currently. In addition, the bank has a quite good network, assets and personnel, the economist added.
The banking regulator acquired Vietnam Construction Bank, Global Petroleum Bank (GP.Bank) and OceanBank last year at zero cost to prevent them from going bankrupt and avoid a systematic collapse. The banks have gradually recovered with the support of the SBV and other state-run lenders.
At the Vietnam Development Forum held in Hanoi last Friday between the Vietnamese government and donors, Prime Minister Nguyen Xuan Phuc tipped that the ADB together with a Vietnamese private partner was working on a plan to acquire one of the three ailing banks that were bought by the SBV at zero dong.
This would be an exceptional case as the ADB usually supports regional countries in dealing with trouble loans and does not operate as a commercial bank. It is likely that the ADB acts as a capital arranger and a link with a number of investors seeking to acquire a Vietnamese bank.
Economists Voice Support
Nguyen Duc Kien, vice chairman of the National Assembly’s Economic Committee, told local press that the buyout would help turn the weak banks into wholly foreign-owned ones, instead of seeking strategic buyers with an ownership cap of 30%.
“In legal terms, it is a radical option to handle these ‘zero-dong’ banks and it does not go against the Law on Credit Institutions, as Vietnam allows the establishment of wholly foreign-owned banks,” Kien said.
The sale of the weak banks indicates the government’s resolve to tackle bad debts in order to buttress local lenders, he added.
The government aims to speed up the handling of bad debts in the coming two years to strengthen the local banking system and bring down lending interest rates to regional levels, which in turn will enhance the market access of local businesses, the economist commented.
According to financial expert Nguyen Tri Hieu, the acquisition by the ADB will help level up the Vietnamese banking system, instead of letting weak lenders go bankrupt.
Further, the ADB may seek to create an international-standard bank, which Hieu said is not an easy task.
Foreign banks are willing to spend between $132 million and $220 million to acquire a Vietnamese bank to take advantage of its existing sales network.
However, there have been no successful deals so far because of too high asking prices and ownership limits, said economist Le Xuan Nghia, a former advisor to the government.
At the Vietnam Business Forum (VBF) in Hanoi on December 5, the Banking Working Group proposed raising the cap on foreign holding to 35% in an ordinary bank from the current 30% and up to 100% in the three ‘zero cost’ lenders, indicating their interest in the local banking system provided loosened foreign ownership limits.
Another obstacle is a lack of transparency of non-performing loans and the feasibility of handling mortgage. Economists have reckoned that a spate of foreign players would step in to buy shares of Vietnamese banks if solid assets are separated from toxic ones.
According to lessons of some countries, good assets are separated from bad ones in order to facilitate management and attract foreign investors, said Daniel Wu, chairman of the Asian Bankers Association and CEO of Taiwan’s CTBC Financial Holding Co.
This separation expected to be a trend of the Vietnamese banking system in the future, Wu added.