Will foreign banks take further steps?

The trend of selling stakes to foreign bankers, which blossomed 1-2 years ago, now has seemed to subside. Only one successful affair has been reported so far this year.

The deal in which Southern Bank sold 10% of its stakes to Singapore’s UOB in January 2007 was considered the first sale of the year. An ‘engagement’ was made nearly six months later, between Habubank and German Deutsche Bank, but the deal has not been officially inked yet.

An official from the State Bank of Vietnam said that foreign banks had regular meetings and discussions with the central bank every time they planned to buy stakes in local banks. There were many meetings in the past, but very few at this moment. The official said that no official proposal on purchasing stakes in local banks had been made recently.

The agreements signed before by local banks and their partners all contained the provision which said that the foreign partners would raise their ownership ratios to the ceiling level once this was allowed by the central bank. However, as the official said, besides the Hong Kong and Shanghai Banking Corporation HSBC, which has raised their capital contribution ratio in Techcombank to 15% from 10%, no other foreign banker had mentioned the increase of share proportion in local banks. 15% foreign ownership in local banks was approved by the Government in Decree 69 dated in April.

In fact, no official proposal has been made, but local and foreign banks are still discussing issues relating to the selling of stakes to foreign bankers. Luu Duc Khanh, Director General of An Binh Bank, said that the bank was negotiating with four foreign partners, and everything would be concluded in the fourth quarter of the year at the latest.

Pham Van Thiet, Director General of Eximbank, said that the bank would wrap up negotiations this year, after which the bank would sell 15% of its shares (500,000 shares) to foreign strategists.

Director General of Asia Commercial Bank ACB Ly Xuan Hai said that the foreign ownership in ACB had hit the ceiling of 30%. With the current regulations, ACB cannot sell more shares, though foreign bankers still want to buy.

Local bankers said that the ceiling ratio of foreign ownership was a barrier for them and foreign bankers. One of the four partners who sought to buy An Binh’s shares wanted the promise that it would hold up to 30% of the bank’s shares once the Government accepted. However, Mr Khanh said that the bank would only accept the provision if it found a very good partner.

Before the Government promulgated Decree 69, foreign bankers expected that the ceiling ratio for foreign strategic investors would be 30%, while the ratio for all foreign investors would be 49%. However, the ceiling levels have turned out to be 15% and 30% only.

Explaining why foreign bankers were still hesitating to raise their ownership of local banks, Dominic Scriven, Director of Dragon Capital, which now holds shares of many local banks, said that foreign bankers needed some more time to decide whether to inject more money in local banks or set up subsidiaries to develop their own networks.

It is the right time for the foreign banks to consider whether to make further investment or curb investment at the current level. Foreign bankers also need to consider if the mode of cooperation applied in the last time was good for both parties. If everything is okay, they will progress.

Mr Scriven also said that one of the things that made foreign bankers hesitant in stepping forward was the increased value of local banks in the last time.

The value of banks has been overly high, and Dragon Capital will not accept such high prices, he said.

HSBC is the first and only foreign bank that raised its ownership in a local bank after the new decree No 69 came into effect. One year ago, in order to obtain 10% of Techcombank’s shares (the chartered capital was VND580bil, or $36.7mil), HSBC had to pay $17.6mil. However, HSBC had to spend $16.4mil only to buy 5% more of Techcombank shares (VND1,500bil, or $93.1mil), though banks share prices have been skyrocketing so far this year.

Source: VNE