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Vietnam to Sell Shares in State Banks This Year


Vietnam says that four of the country's state-owned banks will sell shares to private investors by the end of this year. The announcement is part of a drive to privatize state-owned companies and make them competitive with foreign rivals. Western investors say they are eager to buy in. In Hanoi, Matt Steinglass has more.

The government has now named 73 state-owned companies it plans to sell shares in, or equitize as it is known here, by 2010. They include four of the country's biggest state-owned commercial banks, to be equitized by the end of this year.

Among the banks are Vietcombank and the Bank for Investment and Development, the country's second and third largest. Alain Cany, the director of the Vietnam operation for global banking giant HSBC, says foreigners, including banks, are eager to invest.

"This is a very promising market, and I'm quite sure that taking a strategic stake in a commercial bank, either state-owned or privately owned, is under the policy or strategy of many foreign banks," he said.

Vietnam's stock market is on a roll, up 145 percent in 2006. It hit a new high of 844.5 on Monday. Financial services are considered one of the most promising sectors.

There are hazards, however. Investment analysts warn that many state-owned firms suffer from sub-standard accounting practices. Investors can find it hard to tell which ones are actually profitable.

But mobile phone and electric power companies, as well as financial services, are generally seen as profitable. Shares in such companies, one analyst says, are "sexy stuff".

From the Vietnamese government's perspective, selling equity is necessary for local banks to compete with the foreign banks that are entering the country. Vietnamese banks need to reform their governance structure, says the International Monetary Fund representative in Hanoi, Il Houng Lee.

"The equitization, I think I would emphasize the need for restructuring, particularly in its work practice, the governing structure, and become more competitive," he said.

The IMF has stressed the need for Vietnam's state-owned banks to get a better picture of their bad loans. Government officials often require bank managers to lend to inefficient state-owned enterprises, which prove unable to pay them back.

But Lee says selling shares in the banks will not eliminate that problem, because outside investment in the state-owned banks will be limited to 30 percent.

"Even if banks are equitized, given the current planning, the government will still be the majority shareholder. So they will have to listen to their shareholders, essentially. And the directed lending, although the scope has been reduced, certainly it's not a done deal yet," he said.

But HSBC's Cany says the banks considering offering shares are highly profitable, particularly Vietcombank.

"At least for Vietcombank, it looks like it should not be a big issue," he said. "Maybe it's not a big and as dramatic as some foreign analysts may think about, because we look at China, and we think Vietnam should be the same. It's probably not a big issue."

It remains unclear how shares in the banks will be sold and whether they will be publicly listed. It may be months before investors find out who will be able to buy stakes.