If Vietnam’s banks are troubled, why are its shares up?

Feb 28th at 10:02
28-02-2014 10:02:08+07:00

If Vietnam’s banks are troubled, why are its shares up?

Bad loans continue to plague Vietnam's banks, with the magnitude of the problem remaining a mystery, but investors are continuing to push the stock market higher.

 

Vietnam's shares are attracting a lot of interest, with the benchmark VN Index tacking on 17 percent so far this year and 6 percent so far in February, but it's banking system looks worrying: at least 15 percent of banks' total assets are likely presenting problems, well above the 4.7 percent non-performing loan (NPL) ratio from the State Bank of Vietnam in October, Moody's said in a report last week.

"We do not expect significant improvements in the capitalization of Vietnamese banks in the next 12-18 months," Moody's said. "Capital remains inadequate to absorb the extent of potential losses stemming from pervasive weaknesses in asset quality."

While it noted the government had taken some constructive steps on the banks, regulators haven't implemented "decisive" policies to address the need for better accounting and transparency, Moody's said.

By way of comparison, China's banks, which have spurred concerns globally, saw their NPLs rise to 1.0 percent of assets in the last three months of 2013, according to data from regulators. But unlike the rally in Vietnam's share market, China's shares have trended downward for a year, partly due to concerns over the banking system.

China's government also has the resources – and some willingness -- to step in with financial help for troubled banks.

In Vietnam, "if they have to provide support, there's room. But it comes to the question does the government want to use public finances to support the banking sector and so far it's indicated it doesn't want to," Art Woo, an analyst at Fitch Ratings, told CNBC.

But if Vietnam's banking system is wobbly, why are investors pushing up the stock market?

For one, not all investors believe the banking system looks as bad as the Moody's estimates suggest.

"The banking sector is improving," said Kevin Snowball, CEO of PXP Vietnam Asset Management, adding he believes NPLs are less than 10 percent of assets.

"We think it's on the way to resolution. A lot of collateral for these NPLs is in property and as the property sector begins to pick up that will assist in the resolution of these issues," he added.

In 2007, the country's property market hit a wall after peaking with a bit of a "flipping frenzy," which was crushed in the following years by double-digit inflation, lending rates above 12 percent and multiple devaluations of Vietnam's local currency, the dong.

Credit for developers dried up and the dong devaluation boosted the cost of imported materials and labor, leading to many abandoned projects.

Snowball also cites a few other factors boosting the market.

He expects the government will soon relax its limits on foreign ownership of companies, offering investors better access to higher quality stocks.

"We're also expecting further thawing of the privatization process so we'll see more access to a bigger market," he said.

"As limits are raised, there'll be more interest in the market and as markets achieve scale, that brings additional interest as well, so it begins to be a virtuous circle, hopefully," Snowball said.

Last month, in a bid to boost the equity market, the government also raised the trading band for stocks on the Ho Chi Minh Stock Exchange, the country's main stock market, to 7 percent from 5 percent, and revealed that it may increase the foreign ownership limits in some sectors - including consumer and brokerages, according to investment advisory firm GaveKal Research.

CNBC



NEWS SAME CATEGORY

Cash injection fails to lift markets

Shares tumbled on both bourses yesterday, but the significant capital inflow proved the staying power of the stock market.

Banking stocks lead market gains

Shares edged up on both the national stock exchanges yesterday, after dropping in the morning trading session, as the high capital flows supported the benchmark...

Shares extend gains as cash flow rises

Shares continued their upward trend on both national stock exchanges yesterday, even though it was the day when about 400 million shares traded last Thursday were...

Shares gain on soaring buying power

Transactions surged in yesterday afternoon's trading session, and benchmark indices posted strong gains.

Transactions hit record high

It was a historic week for the stock market of Viet Nam as trading volume and value on both national exchanges reached a record high on Thursday.

KIS sees VN-Index staying on upward path

The stock market of Viet Nam is expected to reach 650-700 points this year due to investment flows from both domestic and foreign investors, said KIS Vietnam...

Bourses to merge into national exchange

The State Commission of Securities (SSC) is expected to submit a plan to the government to merge the two bourses into a single entity: the Viet Nam Stock Exchange.

Liquidity eases, indices mixed

Following losses on Thursday's trading, which witnessed an all-time high in liquidity, the VN-Index closed slightly lower yesterday.

Shares fall despite record liquidity

Both national stock exchanges saw shares tumbling yesterday against intense selling pressure, but liquidity set an all-time record high.

Shares gain on strong liquidity

Shares advanced on both the national stock exchanges yesterday and liquidity was high.

TRENDING


MOST READ


Back To Top