VIETNAM’S booming economy is beckoning foreign investors, including Thais, so Thai banks have decided to inject more capital here to support Thai business activities and accelerate loan growth.
Last year, foreign direct investment (FDI) in Vietnam surged to US$22.76 billion (Bt810 billion) from $12.5 billion in the previous year. Thai investors ranked 11th in FDI in Vietnam.
Siam Commercial Bank, which opened its first branch in Vietnam in Ho Chi Minh City on Tuesday, will add $25 million in capital by the end of this month into its foreign branch in Ho Chi Minh City. This will boost its total capital to $70 million in preparation for lending to Thai companies doing business in Vietnam, said Saranya Skontanarak, general director of the branch.
Bangkok Bank last week reported that it had boosted the capital of its Ho Chi Minh and Hanoi branches to a combined $250 million from $80 million.
Vichit Suraphongchai, executive chairman of SCB, said the bank had attached great importance to Vietnam because of its bigger population and the high growth of |its gross domestic product.
The FDI figure was also interesting enough for the bank to pursue more business.
The bank targets 25 per cent of Thai business in Vietnam by 2018, he said.
Several large companies from Thailand have entered Vietnam via mergers and acquisitions.
The TCC Group acquired cash and carry operator Metro, and the Central Group won bought Big C Supercenter from Casino Group.
The government of Vietnam has not opened up the banking industry to foreign players, but SCB became the first foreign bank in 20 years to receive a foreign branch licence in December because it has been here for over 20 years through its joint venture Vinasiam Bank.
That was after Vietnam’s government revised its policy for the banking industry in 2014 by asking joint venture banks to stop doing business because the JV platform had proved unsuccessful in helping to strengthen local banks.
The banking industry in Vietnam in the past few years had witnessed high bad debt, forcing the government to assign asset management companies to buy the bad assets to help the industry.
However, JV banks were not allowed to sell bad assets to AMCs.
The third-largest bank in Thailand decided to buy out its local bank partner and Charoen Pokphand, another Thai partner, on the condition that SCB can ask for a licence if it takes over all the good and bad assets from the JV bank.
SCB was willing to transfer all assets to itself if it could stay on here because Vietnam is a piece of the jigsaw to help SCB gain a presence in the CLMV group of countries.
In CLMV, Vietnam and Myanmar are high-potential markets but Vietnam is in pole position right now because of its political stability and economic policies that support foreign investment.
Saranya said her branch was carrying bad debt of $20 million out of its loan portfolio of $50 million.
After the head office in Bangkok injects capital of $25 million, the unit in Ho Chi Minh will not have to worry about the single lending limit rule.
Based on capital of $70 million, SCB Ho Chi Minh can set a credit limit to a single customer of $10 million and to a group of related customers of $17 million, she said.
Based on the trend of Thailand investing directly in Vietnam and the growing trade, the branch should be able to book $20 million of new loans.
It has set up a team to manage the existing problem loans that are backed by collateral, so its non-performing loan ratio could return to normal within two years.
The bad-debt ratio should not exceed 3 per cent, she said.
The major contributors to its loan portfolio will be Thai companies, followed by Thai-linked companies.
If the loan portfolio from Thai companies and Thai-linked companies is stable, the bank will take the next step of tapping local companies.
It expects to break even within two years.
The NPL ratio in Vietnam’s banking industry improved to 2.55 per cent last year from 3.25 per cent in the year before.
Lending in the country enjoyed double-digit growth thanks to the rise in foreign investment and trade.
This year, the authorities of Vietnam target loan growth of 18-20 per cent.
Vichit said foreign banks have a chance to grow in Vietnam because local banks are not strong enough to facilitate business activities.
Local banks in Vietnam are like local banks in Indonesia in the past. While local banks are busy building up their infrastructure, SCB will drive its business.
“We will make our branch strong before considering acquiring local financial institutions.
“SCB might consider doing retail banking on the digital banking platform because there is no need to use branches.
“We hope that what we’re doing in digital banking in Thailand |can leverage our footprints in international markets,” he said about |the next aspiration of SCB in Vietnam.