Foreign strategic investors still bullish on local banks

Friday, May 23, 2008
Overseas financial institutions are increasing their stakes in domestic commercial banks even as shares in these banks have underperformed, following the overall downward trend of the nation’s stock market.

Earlier this year, London-based Standard Chartered increased its stake in Asia Commercial Bank to the 15-per-cent maximum that a foreign strategic investor is allowed by law to hold. Meanwhile, Singapore’s OCBC is obtaining regulatory approval for its acquisition of 15% of Viet Nam’s VPBank.

Most recently, the State Bank of Viet Nam granted special approval to Eximbank to sell 25 per cent of its shares to four foreign strategic investors, including Japan-based Sumimoto Bank.

"Not counting the credit problem which your domestic banks are facing, the banking sector in Viet Nam has many opportunities to develop more strongly in the future," said John Nolan, an analyst with a HCM City fund management board.

Foreign investors can see this potential more clearly than local stock traders, Nolan said, because they are experienced in other stock markets.

They were attracted by the good business performance of domestic banks even as banking stocks have been declining.

"During the first quarter of this year, business performance of domestic banks was quite good, and these are the factors on which foreign institutions base decisions to pour money in," Nolan said.

Sacombank in the first quarter of this year posted a profit of VND435 billion (US$27.18 million), a year-on-year increase of 44 per cent. VPBank in the same period earned VND105 billion in profits.

"Compared with previous years, these profit figures are lower. But, at a time when inflation is high and credit growth slowing, these profits sounded fine," Nolan said.

"The investment of four financial institutions in Eximbank is an example. It’s clear that those partners have seen the financial capacity of Eximbank," he added.

Now, domestic commercial banks were entering another potential, highly-publicised interest rate war, giving them an opportunity to draw even more attention from foreign institutions.

Independent analyst Nguyen Tien Dung said, "In competition, the banks with strong financial power will survive and thrive, while the others will go bankrupt or be acquired by larger banks."

This would lead to even higher quality commercial banks in the future, Dung said, as well as better prices for banking stocks. (VNS)