The three ways of life for small banks
The three ways of life for small banks
In order to become stronger, banks need to be bigger, or they need to increase their capital.
There are three ways for banks to increase capital. First of all, they can issue shares to existing shareholders,
However, this proves to be not a feasible method for small banks, because their owners, who also hold stakes in other banks and invest in some other projects, have become nearly run out of capital. Navibank and Western Bank, which both have the same owner – Dang Thanh Tam – is an example.
Western Bank, finally, has chosen another way to follow – merging into PetroVietnam Finance Corporation (PVFC)
Merging into other legal entities seems to be the choice of the majority of banks. The best scenario is to legalize the zigzag ownership relationships among banks. The State Bank would have to turn the green light on for “parent banks” to acknowledge “their child banks.” ACB buys Dai A, Vietbank and Kien Long Bank, for example,
For the remaining banks, issuing shares to the investors outside is the last resort. Tien Phong Bank has successfully sold 20 percent of stakes to a group of private investors, headed by Do Minh Phu, the owner of DOJI, a gold and gemstone group. Meanwhile, having stakes in the bank is a perfect step taken by DOJI in its business strategy of getting bigger through merger and acquisition deals.
Most recently, TrustBank said it would sell 85 percent of stakes to a group of new investors. The group includes Thien Thanh Group, which buys 9.67 percent of stakes, and the other 20 investors who buy the remaining shares.
However, analysts still keep doubtful about the actual financial capability, saying they are not sure if they are powerful enough to take over 85 percent of the stakes.
The “third way of life” for banks to increase capital, is calling capital from foreign investors. The bank restructuring plan emphas that the state’s money will not be used for the restructuring process. Meanwhile, domestic investors have nearly got exhausted. Therefore, foreign investors prove to be the best choice.
Owing Vietnamese banks have never been less attractive in the eyes of foreign investors. However, at this moment, when there are too many sellers, foreign banks have become choosier when considering the banks put on sale.
In general, only the best banks (the ones belonging to group 1 and 2) can catch the attention from foreign investors.
According to Nguyen Xuan Thanh, a well-known economist, investors will only buy bank shares if they can go for good prices. However, the biggest interest of foreign investors is that they need to hold the controlling stakes in order to have the right to make decisions relating to business strategies.
After selling all Sacombank’s stakes, Tareq Muhmood, General Director of ANZ Vietnam, said ANZ would still seek the opportunities of making investment in Vietnamese banks, but it would only buy stakes if it can hold the proportions of stakes high enough to obtain the right to control the banks and integrate them into ANZ system.
According to a finance expert, the small total assets of Vietnamese banks and their bad corporate governance skills are not really attractive to foreign investors. What they most want from Vietnamese banks is the hardware, or the large network of branches existing in many provinces and cities nationwide.
