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BANKING & FINANCE

pHoto: VIet tUAN

has planned to draft a document to replace ations - a task made more difficult given the banks have completed their restructuring
Prime Ministerial Decision No 58 from 2016. uncertainty of the current cycle and operating process. As many are looking to raise their
The new document, which is to be issued environment. In his view, the foremost ques- registered capital to meet the CAR requirements
this year, will re-classify banks as a group in tion in this current environment is the true in Basel II, they continue to remain attractive
which the State holds between 50 and 65 per asset quality picture in the market. to foreign investors. Given the long-term pos-
cent of charter capital, which in turn sets up Foreign strategic investors are undoubtedly itive outlook of Vietnam’s economy, the market
a framework for an adjustment in the FOL keen to enter Vietnam’s banking sector. “This expects that more banks will raise their regis-
for banks.” is due to the relative appeal of the market tered capital by issuing shares through private
The mounting pressure from the pandemic given the fact that it is under-banked,” he placements to strategic investors.
has not only affected the quality of Vietnamese explained. “Penetration rates in terms of the Regarding foreign capital mobilization for
banks’ assets and profitability but also hampered number of bank accounts or retail or mortgage local banks, it can come in either the form of
some lenders’ cross-border mergers. “Actually, loans remain low, and margins remain relatively portfolio investment or direct investment, for
the bad debts forming from the Covid-19 eco- high. A lower FOL could be a deterrent to example an equity stake. “However, both types
nomic fallout are of a lower magnitude than potential investors, as they may not feel they of investment will have to consider a bank’s
the bad debts that accrued during the last can acquire enough of a stake to exert any prospects as well as fundamental standing,
credit downturn in Vietnam, in 2013/2014,” influence on either the strategic or operational whether on a short-term or long-term basis,
Mr. Ngo Hoang Long, Associate Director at direction or transfer best practices and policies.” which may be difficult to ascertain at this junc-
VCSC, remarked. “In our opinion, banks ture given the uncertainty surrounding the
entered 2020 in the best shape in a decade, so Future prospects sector (in terms of asset quality and profitability)
the magnitude of bad debts from Covid-19 With the Vietnamese Government’s rapid and the economy as we all try to get through
need to be significant to weaken banks.” responsive strategies to control the pandemic, the Covid-19 pandemic,” Mr. Ho noted.
Moreover, asset quality pressures or weak many signs of recovery have been seen in the Looking to the future, Ms. Truc anticipated
operational prospects (whether it is lending country’s economic picture already. Mr. Tung that quarantine requirements will be eased
or fee generation) may lead to lower profitabil- from OCB believes that enterprises and indi- from the second half of this year for countries
ity and growth that may tarnish the immediate viduals with a reasonable balance of capital that have successful vaccination programs.
appeal of a local bank, according to Mr. Ho. can still overcome the difficulties. Foreign “We expect to see a reopening of primary
Amid the current challenging conditions, a capital has moved to Vietnam and many banks equity capital markets in Vietnam in the
bank’s ability to draw capital may rest with seemed quite active in the securities business fourth quarter and with that the launch of
its ability to balance the need to manage risks and other income sources, including OCB. efforts by banks to tap international investors,”
and achieve its growth objectives. Foreign Hence, its achieved good profits in 2020. she said. “We think State-owned banks are
investors looking to invest capital in a bank M&A activities in the banking sector are best placed to successfully raise new equity
would want some certainty on what they are set to heat up this year once Covid-19 is fully capital over smaller banks, because of brand
investing in, in terms of its normalized oper- contained, and the majority of Vietnamese recognition and scale.” %

FEBRUARY 2021 | VIETNAM ECONOMIC TIMES | 41