High times in Hanoi and Ho Chi Minh City
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Southeast Asia

High times in Hanoi and Ho Chi Minh City

Growth is strong, the banks have shed the worst of their bad loans and even the IPO market is enjoying a gala year. Are the good times here to stay or could Vietnam be brought down to earth again soon?


Vietnam is enjoying another of its periodic upswings. Its economy is fairly bounding along, tipped by investment management firm VinaCapital to expand by 6.3% this year, which puts it ahead of Malaysia, Indonesia and Thailand. 

Consumer spending is up sharply, with local banks investing in new staff, services and branches. There’s even a genuine belief, buttressed by a series of big-ticket IPOs, that the capital markets are back. It’s impressive stuff for sure – but will it stick this time?

Of course, we’ve been here before. Foreign investors flooded into the country in the mid 1990s, enticed by heady valuations. Most departed, tails between legs, after hitting the usual frontier-market snag of too much capital chasing too few assets. Another credit-driven boom in the 2000s ran into trouble when many banks were forced to scale back or close down.

This time around, will it be any different, allowing Vietnam to fulfil its undoubted potential? The newcomers that appear when any frontier market starts to buzz hope so. 

Mike Lynch is one such enthusiast. After spending the last two decades in Hong Kong, most recently as head of Asian sales at CLSA, Lynch moved to Ho Chi Minh City in April and is now the head of international sales at Saigon Securities, Vietnam’s largest brokerage. What made him move to Saigon (as it’s also known), the biggest city in the south and the country’s commercial hub?

“First, because Vietnam will go from frontier market to emerging market status in the next two or three years, so you want to put your money to work here before that happens,” Lynch says. “Second, because I like the government”, led by prime minister Nguyen Xuan Phuc. “It’s pro-business, pro-infrastructure, and pro-improving everyone’s quality of life.”

Older hands may be more circumspect, but are just as keen to bang the drum. “Vietnam is a bull market right now,” says Dominic Scriven, chief executive of Dragon Capital, a local asset management firm he co-founded in 1994. 

Minh Tran, now head of investment banking at local brokerage VNDirect, started his career at Dragon Capital in 2005. He believes this uptick in growth and asset prices will last. 

“The government really wants it to work,” he says. “Wherever you look, they’re cutting red tape to bring more foreign capital in.”

Nghiem Xuan Thanh, Vietcombank

This bullishness would mean nothing if the numbers on the ground didn’t stack up. But Vietnam’s allure is clear and demonstrable, from its large and young population (96 million with an average age of 30) to its strong performance in some areas of education (it ranked eighth in science in the OECD’s Pisa survey for 2015, putting it ahead of Hong Kong, South Korea, the UK and Germany).

Wages are low – roughly half the level of China’s, according to World Bank data – explaining the interest of manufacturers like Samsung, LG and Intel. 

All three have big operations here: Samsung alone has invested $17.3 billion, producing 30% of its cellphones in Vietnam. 

Inward investment should remain high for years, in part because the government is so heavily reliant on FDI, but also because of the overall environment.

Everything is so stable here right now, politically, economically and even financially,” says Michael Kokalari, chief economist at VinaCapital. “It’s a perfect destination for FDI.”

Then there’s the consumption story. Vietnam is home to the world’s fastest-growing middle class, which the World Bank predicts will comprise 33% of the population by 2020, up from 20% in 2016. More people are moving to cities and spending when they get there, boosting sales of home furnishings, cellphones and white goods. 

It’s a market where modern retail is still in its infancy, as VinaCapital noted in a report in June, and where the penetration rates of every conceivable product or service are very low. Just 0.54% of people have non-life insurance, to give an example.


High growth, political stability, a steady influx of investment capital from the world’s largest corporates and a spike in consumer spending: this surely should be boom time for financial services providers.

Well, yes and no. Most local lenders are having a great time. Pre-tax earnings at the nine largest listed banks rose 30% year on year in the first six months of 2017. 

Hanoi-based Vietcombank, the largest domestic lender by market capitalization, reported $232.5 million in first-half earnings, followed by VietinBank, the largest state-run bank, with $212.4 million, then BIDV ($164.1 million) and Military Bank ($111.7 million). 

Asiamoney’s pick for best bank of the year, Asia Commercial Bank (ACB), reported a record 52% rise in first-half profits.

This windfall stems largely from a sharp spike in credit growth, with bank lending up 18% year on year in 2016, the highest rate of expansion in six years, according to the State Bank of Vietnam (SBV). In August, the prime minister called for an increase in bank lending of 21% in 2017, to help the government hit its 6.7% GDP growth target. 

Having slogged their way through a series of average or downright awful years, the best local lenders are determined to enjoy life while the sun shines. Take Vietcombank, which in 2016 reported record earnings of D8.2 trillion ($360 million). Deposits rose 19.4% on an annualized basis, with total outstanding credit increasing 18.9% year on year. 

Michael Kokalari, VinaCapital

Its ambition for 2017 is to increase its loan book by another 18%, boosting assets by 11% and profits by 12% – but as the bank’s chairman Nghiem Xuan Thanh makes clear, this is just the start. “Vietcombank attaches great importance to our overseas business,” Nghiem says. “We’re present in a number of major financial markets, with representative offices and subsidiaries in Singapore and Hong Kong, and plans to open a rep office in the US, and to roll out a wholly owned subsidiary in Laos. From there, we plan to tap the market in Australia and other countries.”Already a major player in its home market, with more than 15,000 employees at 500 branches and transaction offices, Nghiem outlines plans to expand the bank’s global footprint. 

Another Hanoi-based lender, Vietnam Prosperity Bank, is also going places. VPBank, as it is more commonly known, listed 1.3 billion shares on the Ho Chi Minh City Stock Exchange on August 17, raising nearly $300 million and giving it a market value of $2.3 billion. Foreign institutional investors now own 22.34% of the bank. 

The offering was the largest ever by a private firm in Vietnam, beating international carrier VietJet Air’s $167 million stock sale (which was the previous largest IPO), completed in February. Due to its IPO, the lender declined an interview with Asiamoney, but one of the institutions involved in its bookbuild, investment bank Viet Capital Securities (VCS), was keen to meet and talk up the lender’s strengths.

“It’s the dominant player in the consumer finance sector, which is a new but also a vital and fast-growing part of the banking sector,” says Barry Weisblatt, head of research at VCS, adding that “VPBank has spent a lot of money on its IT systems, on building robust systems to help it consolidate its success.” 

VPBank unit FE Credit controls 48% of the consumer finance sector, according to central bank data; that puts it ahead of HDFinance (which is 49% owned by Japan’s Credit Saison), and Czech Republic-based non-bank financial institution Home Credit

VPBank targets small and medium-sized enterprises: lending to SMEs and micro companies jumped 30% year on year in 2016, according to its annual report.

VPBank is also “one of the few banks that can genuinely boast strong risk management systems,” says Ngo Vinh Tuan, head of investment banking at VCS. “They’re very careful about vetting a borrower’s credit profile,” in large part because they are lending small amounts of capital, often to new clients with little or no credit rating. 


Ngo points to their softly-softly approach to recouping debt: “If you have problems paying, a member of their team will call you. ‘Hi, how are you, you’re overdue a day or two’, they’ll say. All very friendly. Then a stronger call 10 days later, and if that doesn’t work, someone will swing by your house, chat to your neighbours or relatives, and even offer to help with payments. The drop-by is key, as reputation is very important here, and no one wants people thinking they’re a deadbeat. They recover a lot of their debt this way.”


Vietnam’s banking sector is a work in progress. It’s profitable and powerful: the IMF noted in its country report in July that the financial system, which is “bank-centric and dominated by state-owned banks” is unusually large for a middle-income country. 

In 2016, banking-sector assets were equivalent to 194% of GDP, accounting for 96% of all financial-sector assets.

State banks still hold sway, with the four largest public-sector lenders, led by VietinBank, accounting for 45% of all industry assets and half of total credit. 

But the problem with these banks, the IMF wrote in its report, is that they lend too much to under-performing state-owned enterprises at “unnaturally low rates”. 

This, in turn, prevents profitable private firms from having access to credit, and suppresses economic growth.

The IMF called for reforms to increase growth and create a fairer, more efficient way of allocating bank capital, including phasing out credit targets and lifting interest rate ceilings. 

One of its demands has already been met: in August, the government in Hanoi set up a derivatives market and started off with trading in stock futures contracts, a key step toward inclusion in the MSCI Emerging Markets index.

The IMF has also pointed to a glaring need for deeper capital markets. The Ho Chi Minh City Stock Exchange (HOSE) had a market cap of $79 billion at the end of May, lagging the main bourses in Malaysia (which boasted a stock market cap of $248 billion), Thailand ($453 billion) and Indonesia ($471 billion). That, though, is changing: 22 firms listed on HOSE in the 18 months to the end of June, taking the total to 329. The bourse’s population had previously been static for five years, hovering around the 300 mark. 

Two long-standing defects undermine the domestic banking scene. The first is a worrying lack of working capital – VinaCapital reckons the sector needs at least $7 billion in fresh working capital to finance loan growth. It puts the industry’s capital adequacy ratio (CAR), before taking into account Basle II capital-adequacy rules, at 12.8%, falling to 8.5% under Basle II rules. Asia Commercial Bank boasts the highest Basle II-compliant CAR of any mainstream commercial lender, at 8.3%, with Military Bank at 8%, Vietcombank at 7.4%, and VietinBank at 5.9%. 

Size of Vietnam's stock markets (versus its Asean-area peers)

At the bottom of the heap sits Sacombank, with a CAR of just 3.2% under Basle II rules. Its shares have fallen more than 8% in the year to late August – whereas the HOSE index is up almost a fifth – hit hard by the arrest of former executives for alleged mismanagement of the bank’s finances. 

In August, the former chairman of another struggling lender, OceanBank, was charged with breaching loan regulations, abuse of power and fraud.

Both of those institutions are, sources in Saigon say, likely to be restructured and sold in the months ahead, possibly to foreign investors. 

In February, the prime minister said he would raise the bar on foreign ownership this year to draw more foreign capital into the sector. The current limit is 30%, though that may rise to 49% and maybe higher given the right circumstances – for example, if a foreign bank or private equity firm is willing to plough money into a genuinely troubled financial institution – in 2018.


The second and perhaps more pressing problem involves a disconcerting ability to lend badly, regularly. 

Vietnam’s banks have not in the past been particularly wise when deciding who deserves their cash. Hanoi was forced to step in after a massive surge in lending led to an equally rapid spike in bad loans, with the non-performing loan ratio peaking at 17% in 2013

That year, the Vietnam Asset Management Company, a bad bank, was formed, buying $9.4 billion-worth of dud loans in the three years to the end of 2016. 

And VAMC did a good job. Processed bad loans are being recycled back into the system, thanks to a new law passed in May that allows banks to sell NPLs and the assets that back them, more quickly and with fewer limitations, thus speeding up the disposal process. By and large, VAMC acted with clarity and purpose, “giving the sector enough breathing space – four or five years – to solve their own NPL problems, and instilling new confidence in the system,” says Fiachra Mac Cana, head of research at Ho Chi Minh (HSC).

The ratio of impaired loans to total lending fell to 8.4% at the end of 2016, down from 12.7% in the middle of 2015, the IMF says. And though bad loan rates are still fairly high, according to Vietcombank chairman Nghiem, the government clearly believes it has seen the worst of the problem, and expects the bad loan ratio to bottom out at 3% by 2020.


But is this realistic – and does Vietnam, through its current actions, face the threat of another asset bubble and another bad-loan headache? As recently as May, Moody’s Investors Service warned of the risk that at least some of the new lending could turn sour, given credit growth of 18% in 2016 and (if the prime minister gets his way) 21% this year.

Nghiem believes there “has not been any evidence that credit is growing too fast”. 

Real estate lending, the source of so much of the woe last time around, made up just 6% of all new loans in the first half of 2017. Nghiem notes that more than 80% of this year’s new lending is “focused on priority areas for production and large and important [government] projects”.

But talk to experts on the ground and they mutter that regulators, having solved one problem, are in danger of creating another. 

One analyst points to a report issued in May by the National Financial Supervisory Commission, which warns that the real pace of growth of real estate lending in the first half could be as high as 14%, with borrowers disguising property loans as consumer loans just to get them expedited.

“The government thinks they’ve got the NPL problem under control,” says one banker. “If this credit bubble leads to new contamination, I wouldn’t be so sure.” Digvijay Singh, senior manager for research at Viet Capital Securities, adds: “We are likely 18 to 24 months from an inflection point in the credit cycle, and if prudence is not undertaken in another six months, we are likely to see potential problem assets cropping up.”

These are potential problems for tomorrow, though; for now, Vietnam’s banking sector is in, if not quite rude health, then certainly its best shape in years. Curiously, there is one group of lenders that might disagree on that point, at least if their actions are anything to go by – the foreign-owned banks.


There has been a flurry of asset sales and departures by foreign lenders in recent months. 

In July, Commonwealth Bank of Australia (CBA) won approval from the central bank to sell its only domestic branch, in Ho Chi Minh City, to Vietnam International Bank. The Australian lender will retain a 20% stake in VIB that it bought in two tranches, in 2009 and 2010, though analysts in Saigon believe the sale is the first step in CBA’s eventual departure from the country.

Another Australian lender, ANZ, sold its domestic retail banking operations in April. The business had $240 million in loans, $630 million in deposits and served 125,000 customers. 

HSBC is a strong player in retail banking and international banking, but it has sold its 19.41% stake in Techcombank.

Standard Chartered is a curious one, with analysts convinced it’s keen to sell its 15% stake in ACB. 

“They’ve been ambivalent for some time, and their degree of commitment – to either stay or leave – is hard to discern,” says Viet Capital’s Singh. Standard Chartered declined to comment for this article.

This isn’t entirely an exodus. Foreign banks, particularly Asia-based lenders keen to expand their regional presence, are eager to gain access to or broaden their footprint in a fast-growing and (in the right areas) lucrative sector. 

ANZ sold its local business to a foreign peer, Korea’s Shinhan Bank. And Singaporean, Japanese and Malaysian lenders have long been keen on Vietnam.

Singapore’s sovereign wealth fund, GIC, said in August 2016 it would acquire a 7.73% stake in Vietcombank – though more than a year later, that sale has yet to be approved.

Why though are some foreign lenders so keen to leave, or at least pare back their local operations just as the going gets good? 

The prosaic answer has less to do with any shortcoming on the part of this fast-growing frontier nation and far more to do with the deglobalization of the banking industry, with global lenders facing high compliance costs and forced to focus their attention and their assets in a few choice markets.

ANZ’s sale, far from a one-off, was part of a long-term process of divesting assets and branches to free up capital that it can channel into institutional banking services in the likes of Malaysia, Indonesia and the Philippines. In January, it sold its 20% stake in Shanghai Rural Commercial Bank.

“This is a global banking affliction, not a reflection on Vietnam,” says Dragon Capital’s Scriven. But he adds that for many foreign lenders, “their plans to buy stakes in a Vietnamese bank and grow their presence, spider-like, from there, has been a disaster, given that they didn’t control the asset and had little say on how their local partner was run. Plus, Vietnamese banks are pretty competitive and have far better access to the local deposit base.”

Adds a Saigon-based banker: “To some of [these lenders], Vietnam is still a fairly small operation. So while getting out might be dumb in the long term, for now, it really isn’t a great loss.”


Vietnam would seem to have it all: growth, low inflation, rising inward investment, improving infrastructure, soaring retail sales, and a banking sector lending at a rate of knots – and, for now, cleaned of a good share of its bad loans. Foreign banks, or some of them, may not see things that way, but local lenders do, and they are investing hard in their future and the country’s.

The only question that remains is: will this boom last? It is striking how many of the old guard feel compelled to reel in their expectations to avoid getting carried away.

“There will be upsets, it’s inevitable,” says Dragon Capital’s Scriven. “The one thing you can be sure of here is that there are always new mistakes to make.” 

VNDirect’s Tran is also wary. “While my sense is that it’s all coming together, you just never know. With Vietnam, there’s always a spanner somewhere in the works.” 

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