The Vietnamese government's target for all 13 unlisted joint-stock commercial banks to go public by end-2020 appears a tall order due to the lenders' relatively weak capital position and volatile equities markets, analysts say.
The latest listing target was signed off by Prime Minister Nguyen Xuan Phuc early last year as part of the country's renewed push of the restructuring of state-owned enterprises and the banking sector, according to a March 2019 report by the Hanoi Times. The policy goal of having all 31 domestic joint-stock commercial banks listed is to help lenders raise capital to meet Basel II standards and improve corporate governance.
Listing of banks in Vietnam had missed the government's target in the past. According to a 2017 report by The Nikkei, four lenders completed IPOs between 2013 and 2016, falling short of the official target of 10.
"Privatization and [State-Owned Enterprises] divestment are the key agendas for the government, but the process has been painfully slow across the sectors," said Rikin Shah, an analyst at Credit Suisse.
Currently, 13 of 31 domestic joint-stock commercial banks are listed, including Tien Phong Commercial Joint Stock Bank and Ho Chi Minh City Development JSCB. Five others are trading on the Unlisted Public Company Market, or UPCoM, a preparatory trading venue run by Hanoi Stock Exchange that public companies usually go to before listing on the two main stock exchanges in Hanoi and Ho Chi Minh.
The remaining 13 are among the smallest in the sector, which may find it difficult to attract investor interest in their IPOs, analysts say. According to data from S&P Global Market Intelligence, those unlisted banks represent at least 16% of total assets of all local joint-stock commercial banks in the country.
Legacy, regulatory issues
"The banks under consideration are at the tail end of the system, are quite small in size and some of them are still grappling with the legacy asset quality problems," said Shah.
Vietnam's banks struggled with bad loans while recovering from the 2012 banking crisis when the central bank had to rescue some failing banks. However, the sector's nonperforming loan ratios have been declining since 2013 when the government created the Vietnam Asset Management Company to take NPLs off banks' balance sheet.
Still, only 16 local banks had met Basel II requirements by Jan. 1 deadline, and their capital levels are lower than many regional peers, according to Worawat Saisuphatphol, an analyst at UBS.
Restrictions on foreign investors, such as a foreign ownership limit of 30% for banks, is another drag on the recapitalization efforts as it discourages investments from abroad, analysts say.
The foreign ownership "restriction is still a major obstacle for foreign investors to participate in the stock market and is also one of the key factors that prevented Vietnam stock market to get upgraded from frontier to emerging market status," said Saisuphatphol.
Credit growth slows, but still high
Vietnam's economy has grown at a rapid clip in recent years, helping lift nearly half of its 97 million population out of poverty since 2002, according to the World Bank. Gross domestic product expanded at a more than 7% annual rate in the last two years, making it among the fastest-growing economies in the world even as global growth slowed. But that growth may have stretched local banks.
"During 2015-17, Vietnam banks' credit growth was the strongest in the region but this also made them the most-leveraged banking system and recapitalization has become a very important agenda," Saisuphatphol said.
Credit demand in Vietnam has been relatively high over the years, though it has slowed in recent years. Credit growth was 12.1% in 2019, compared with 13.3% in 2018 and nearly 17% in 2017, according to General Statistics Office of Vietnam.
Analysts say recent global macroeconomic events such as the coronavirus outbreak may slow the IPO process and force the government to extend the listing deadline again.
"There is a fairly good chance that several of them may not be able to meet the deadline. But I think (the coronavirus) gives a reasonable external excuse for the State Bank of Vietnam to give them an extension," said Clarence Koo, partner at Oliver Wyman.
Vietnam, after all, is an attractive destination for foreign investors owing to the banks' improved risk management systems and credit evaluation systems, Koo noted. The country’s robust economy also serves as a "macroeconomic hedge" amid the China-U.S. trade tensions, he said.
As of Feb. 24, US$1 was equivalent to 23,285 Vietnamese dong.