Vietnam audit finds losses, mismanagement at Agribank unit

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Agribank Financial Leasing Company No. 2, a unit of state-owned Vietnam Bank for Agriculture and Rural Development, lost VND3 trillion (US$143 million) in 2009 because of "serious" mismanagement, Vietnam's state auditor said in a report obtained by Bloomberg News.

The auditor recommended in the report that the government investigate any violations and consider restructuring the leasing company. Vietnam Bank for Agriculture and Rural Development, known as Agribank, is the country's largest bank by assets. The leasing unit's cumulative loss may have increased in 2010, according to the report, which is dated October 2010.

"The current financial situation of the Agribank Financial Leasing Company No. 2 is very serious," the State Audit Office of Vietnam said in the report. "There were many serious violations in managing and using state capital in its activities."

Agribank Financial Leasing's General Director Hoang Ngoc Tien declined to comment when contacted by phone. Officials in the government's audit office also declined to comment and hung up when contacted by phone.

Losses at another of Vietnam's biggest state-owned companies may further damage the image of the country's economy following the near-bankruptcy of Vietnam Shipbuilding Industry Group, known as Vinashin.

Vinashin default

Sentiment toward Vietnam in international capital markets turned bearish after Vinashin defaulted on the first payment of a $600 million loan, the World Bank said last month. The Vietnamese government last month acknowledged "shortcomings" in managing Vinashin and said it would accelerate the sales of shares in state companies.

"The perception has been that Vinashin was an isolated case among state-owned companies in Vietnam, an exceptional failure, but the problem is that we don't have a transparent situation so we really don't know the state of health of many government companies," said Fred Burke, a partner in the Ho Chi Minh City office of the law firm Baker & McKenzie LLP.

"If we see more cases that are anything at all like Vinashin, then the risk perception of Vietnam will go up further and foreign investors interested in companies here will not offer as much for assets," Burke said in a telephone interview today.

Agribank Financial Leasing had VND10.1 trillion in assets on Dec. 31, 2009, with bad debt accounting for 60 percent of the 6.9 trillion dong of outstanding loans in financial leasing, according to the report.

More losses

The company may face an additional loss of VND1.27 trillion according to the report.

The company continued to buy and lease more assets to customers who had bad debts with other creditors, the report said. The leasing company purchased properties from sellers who didn't possess legal title, the report said.

Agribank, the parent of the leasing company, has had "excessively strong" loan growth and a high loan concentration on the "riskier agricultural/rural sector," Fitch Ratings said in August.

Vietnamese banks' asset quality may decline "rapidly" because of loan growth in past years and the country's accelerating inflation and rising interest rates, Standard & Poor's said last month.

Government efforts to improve banking regulations and risk-management standards have been "incremental," Standard & Poor's said.

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