BBL wary of realty markets in China, Vietnam

Even though Vietnam and China are starting to lose economic momentum, Bangkok Bank can keep up its growth there without worrying much about non-performing loans due to its hands-off policy towards the real estate industry.

Overheating in the real estate markets of both countries has caused a bubble, especially in Vietnam.

NPLs at Bangkok Bank’s Vietnam branches in Ho Chi Minh City and Hanoi are only 2 per cent of the Bt20 billion portfolio, Tharabodee Serng-Adichaiwit, senior vice president and general manager for Vietnam, said last week.

The focus is on manufacturing and consumption-related industries, he said.

In Vietnam, the bank has only a branch licence, unlike in China, where it is the only Thai bank with a local licence.

The slowdown in economic growth in China – the result of the fast growth in the real estate industry in the past years – had made the bank pay less attention to this industry, said Suwatchai Songwanich, CEO and director of Bangkok Bank (China).

Bangkok Bank (China)’s NPLs are only 1 per cent of US$1 billion (Bt30 billion) in its outstanding loans there because most customers are in the real sector such as manufacturing.

“We have closely watched the situation in China since 2009 after seeing signs of a slowdown there. We have been more cautious in giving loans to likely risk sectors and take care of our liquidity and customers to avoid bad assets,” he said.

Suwatchai and Tharabodee were in Bangkok to present an overview of the opportunities in those countries.

Suwatchai said Bangkok Bank (China) targets loan growth of 10 per cent this year based on the forecast of 7.5 per cent for China’s economic growth.

Beijing wants foreign banks to play a bigger role in helping its SMEs to drive economic growth, so Bangkok Bank will try to increase its emphasis on this kind of customer.

SMEs in China are like corporate customers because China defines an SME as a company with annual sales of 300 million yuan or Bt1.5 billion.

SME loans account for 35 per cent of the bank’s portfolio in China. About 40 per cent of its customers are still Thai companies, while Chinese customers are 15-20 per cent.

The Vietnamese economy will likely need more time to stage a recovery. The government in Hanoi has limited the loan growth of foreign banks to 12 per cent so that local banks can compete with them and quickly recover from a huge bad-debt burden from extending project financing to the property sector. 

Bangkok Bank in Vietnam expects to expand 5 per cent this year.

The bank sees the recession in Vietnam as an opportunity for Thai corporations to acquire cheap assets because the country is restructuring bad credits in the commercial banking system and has formed a national asset management company (AMC) to handle the dud loans in real estate. The AMC will start operating next quarter. The central bank is trying to reduce NPLs in the banking industry from 8 per cent to below 3 per cent. 

NPLs in Vietnam’s banking industry stand at 4 per cent of outstanding loans of $120 billion-$130 billion. 

 

Plunge in asset prices 

Asset prices in Vietnam have plummeted 30 per cent, so this is the right time for Thai businesses to invest there.

Three attractions for Thai companies are resources, reduced production costs and the population of 90 million.

To do business in Vietnam, Thai firms must consider embarking on mergers and acquisitions (M&A) or establishing wholly owned companies rather than forming joint ventures with local partners.

Such JVs in the past have proved that this model can never achieve success since the way of doing business between Thais and Vietnamese is different.

Bangkok Bank has been in Vietnam for more than 20 years and has renewed its licence there by 99 years.

In Vietnam, Thai corporations are the major customers at 40 per cent. International corporations from countries such as China, Japan and Taiwan account for 30 per cent and the remainder is local customers.

Thai companies rank 10th in foreign direct investment with a value of $5 billion-$6 billion, while Japan leads with $27 billion.