Vietnam banks told market listing is the way ahead

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Prime Minister Nguyen Tan Dung has ordered commercial banks to list to improve their transparency and avoid cross ownership of shares.

Only nine out of 37 joint stock banks in Vietnam have listed, including state giant Bank for Investment and Development of Vietnam in late January.

Shares of listed banks are more sought after, with investors saying they feel confident about them since they appear more transparent, not to mention that they tend to be larger and operate better.

Economist Nguyen Tri Hieu said all banks in the US, big or small, public or private, have to be listed.

An unidentified director of a foreign fund in Vietnam said listing banks would make them healthier and save the whole system from the spiralling increase in bad debts since many outsiders, many of them likely to be international experts in administration and financing, would be involved in the management rather than just the banks and authorities, especially when some shareholders are .

If banks are left to restructure by themselves, it would take a lot of time and the economy would pay a heavy price, the executive said.

Dr Nguyen Van Thuan, head of the finance and banking faculty at the Ho Chi Minh City Open University, said the mergers of several weak banks resolved the cross-holding issue to an extent, but the total amount of bad debts remains unchanged.

Fewer banks (compared to 41 when the restructuring started in late 2011) and public warnings about weak banks are not enough to improve the system, Thuan said.

Banks need to make regular and audited financial reports like listed firms, he said.

“Under pressure from investors and the strict regulations of the stock market, the banks themselves will have to change for the better.”

A government resolution issued this year and to take effect February 20 will allow foreign strategic investors to own up to 20 percent of a commercial bank, up from the current 15 percent.

But the total foreign ownership limit remains 30 percent, which, according to experts, will fail to attract foreign investment in banks.

The Vietnam Association of Financial Investors has suggested that the cap be raised to 49 percent.

Nguyen Hoang Hai, general secretary of the association, said the current cap is not attractive since it does not give foreign investors much say in a bank's affairs.

Instead of merging weak banks, which would not produce a strong bank, the government should allow bigger foreign ownership at those banks to really transform their administration, he said.

Hieu also said bigger involvement by foreign investors will allow them to influence the management and operation, and help avoid bad debt as well as other risks.

Dr Le Dat Chi, head of the financial investment faculty at the Ho Chi Minh City University of Economics, said taking the IPO route is a global trend among profit-making organizations.

“Any bank not willing to list must be forced to do so by the government.”

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