With the favourable movements of stock prices, monetary policies and bad debt settlement from 2017 to early 2018, bank stocks have been hunted and people are talking about the return of these “king stocks”.
There is a period people rumouring and being concerned when they saw some foreign banks ending cooperation with Vietnamese partners (as in the cases of HSBC Techcombank or Standard Chartered ACB). However, these concerns were soon faded with very positive profit and bad debt handling figures which have been reported recently. This situation is creating favourable conditions for banks to find strategic partners and issue shares to increase capital (or partly sell State capital).
Through talking with staffs working in joint stock banks in the last months of 2017, the writer has heard information about the regional and international partners which are eyeing Vietnamese banks.
The questions are how the role of these strategic partners will be and will this new information make investors more excited?
Strategic partners are not miracles
In 2004-2006 period, investors were very optimistic and excited when having foreign strategic partners joining local banks. Nevertheless, as the difficult period for the banking sector has passed, domestic investors perhaps have more or less recognised that strategic partners are not miracles. Cross-ownership, capital adequacy violations and inaccurate bad debt data were still found even when there were foreign investors in banks’ Board of directors (BOD).
In the process of restructuring, some banks could not find the way out after several meetings of the BOD due to the disagreement between the groups of Vietnamese shareholders and foreign shareholders.
In October 2017, when talking about strategic partnership of two fairly large emerging banks, an interesting point was that the bosses who presented at the BOD’s meeting and the middle management had very different view on the role of the personnel assigned by foreign partners to work at the bank. It is the difficulty due to cultural difference, and difference in management and treatment to human resource, not to mention the obvious difference in the strategic views and the way of doing business between the group of large Vietnamese shareholders and foreign partners. Strictly speaking, it is the difference in both motive, and understanding about “the way the game is played” and “the rules of the game”.
Banks being more tradditional in some areas (such as foreign currency, lending to oil and gas enterprises and exporters) and some locations (such as Hochiminh city) will face more difficulties in adapting with a “playing rule” brought by foreign partners, such as diversifying portfolio and not allowing a branch to account for overly large revenue. That absolutely affects the entire system.
Strategic partners cannot play the role of a company which acquires Vietnamese enterprises and is able to set a new “playing rule”. Strategic partners are mostly small shareholders compared to the Vietnamese bosses. Thus, compared to the conflicts in culture, business model, and management that occurred in the mergers and acquisitions (M&A) deals, the barriers for foreign strategic partners are far greater. Thus, having too much expectation on strategic partners is far more disruptive than expected in M&A deals.
Besides, many strategic partners joined Vietnamese banks at their peak and then quit after undergoing a decade struggling to restructure Vietnamese banks in their own way but could not complete. That is a way of making divestment for less profit and less loss.
The pressure of raising capital, cultural friction and new partners
The developments from late 2017 to early 2018 showed that there has been a certain transfer in the financial sector between foreign partners, such as Shinhan Bank acquired the retail section of ANZ and Prudential Finance Company. This points out that there are still many foreign partners interested in Vietnamese market, but the game seems to be changing in the direction that Chinese, Korean, Thai and Singaporean partners having abundant capital, benefits and business culture closer to Vietnam may replace the partners which are more different to Vietnam in cultural aspect.
It does not mean that foreign strategic partners having capital, reputation, network and experiences will be chosen, as Vietnam’s banks are in the need of raising capital and many banks will have to apply the Basel 2 standards in the short term. The lending portfolio should also be adjusted to be safer so that when calculating the risk-adjusted assets, it will be “nicer” in order to have a better capital adequacy ratio.
With the current uptrend of shares, more Vietnamese banks will surely have foreign partners in the near future. Nevertheless, the success does not depend on the foreign partner but on the “match” in level, goals and visions of the parties.
In that process, the main role is in the hands of Vietnamese owners. Their desire, their vision short term or long term, their understanding of the bank and the determination to reform the bank will determine the selection of foreign partners and the support given to the partners in restructuring the bank. Thus, having foreign partners are more likely a tip of the iceberg if they do not hold dominant shares. Assessing banks, therefore, should look at the local bosses who are holding the majority of capital.
Category: Finance
