VietNamNet Bridge – The Prime Minister’s Decision No 51 issued on September 15 requires the State Bank of Vietnam (SBV), or state-owned commercial banks appointed by SBV, to buy back capital contributed by state-owned institutions to credit institutions, if the capital is equivalent to 5 percent or higher of the credit institutions’ chartered capital.

Analysts said the decision aims to speed up the process of restructuring weak banks and clear the cross-ownership status of many commercial banks, one of the biggest problems of the banking system.

With the current ownership status of banks, it is difficult to discover who the real owners of the banks are.  “A” Bank, for example, has many shareholders, including “B” Bank and “C” Bank. “A” Bank contributes capital to “D” Bank, which, in turn, is one of the owners of “C” Bank.

The prices at which SBV buys shares will be equal to the book value, if the account book value is lower than the value defined by independent valuation firms.

In case the prices defined by independent valuation firms are higher than the book value, the prices by independent valuation firms will be the final prices.

Some analysts contacted by Thoi bao Kinh te Sai Gon refused to make comments about the feasibility of the solution, but said they could see many upcoming challenges.

They warned that state-owned institutions (economic groups or general corporations), which had contributed capital to the credit institutions could suffer heavy losses, because the credit institutions’ value has decreased.

Many commercial banks reportedly have very high ratios of fifth-group bad debt (the worst, unrecoverable debts), which means that they have to make high provisions against bad debts, leading to a sharp decline of their book value.

Meanwhile, state-owned institutions in the past bought shares of credit institutions at prices equal to the face value of the shares.

Shares of An Binh, Ocean’s PVcomBank, PGBank and Phuong Nam Bank are traded below VND10,000 per share on the OTC market (over-the-counter).

NVB and SHB, the bank shares listed on the bourses, are also traded below their face value.

Another problem that analysts have pointed out is that buyers forced to pay back capital may not have money to buy shares.

The State Bank may not be allowed to buy bank shares with the money from the state budget.

As a result, analysts think it is highly possible that state-owned banks would come forward and buy bank shares to help state-owned institutions withdraw their capital from banks.

They assume that the government would have to offer many preferences to banks in exchange for their agreement on buying back bank shares.

If Vietcombank, BIDV or VietinBank, for example, accept to buy the shares, they would demand corporate income tax incentives, or low refinancing interest rates.

There are no official statistics about the initial investment capital that state-owned institutions pour into commercial joint-stock banks. An investment institution estimated that the figure could be VND15 trillion.

TBKTSG