Vietnamese banks scareoff investors with lingering bad debt problems and lack of capital, Indianbanks have among the lowest Tier 1 capital ratios while investors should bewareof new financial instruments being marketed by Japanese banks.
Investors are avoiding Vietnamese lenders, scared off by thebanks' lingering bad debt problem and lack of capital, Bloomberg News reported.A gauge of six banks listed on the Ho Chi Minh stock exchange fell 6.7% thisyear to Oct. 5 even as the VN Index rallied 19%. International investors weremostly put off by the banking system's undercapitalization and bad debtsituation, said Marc Dandji, head of institutional sales at RongViet SecuritiesCorp. Vietnamese banks will also have to deal with the introduction of Basel IIstandards in 2017, which will require banks to hold more capital. Investors seean increasing risk that lending standards will drop as credit growth increasesto meet official targets. Meanwhile, bad debts remain a problem even thoughVietnam has done much to clean up the situation. Nonperforming loans fell to2.58% as of the end of June, down from a high of 17%. However, AMC, an assetmanagement company set up by the government to purchase bad loans from banks,has resolved only 15% of the 251 trillion dong of debt it acquired as of Aug.11.
Japanese investors should heed the lessons learned from the2008 financial crisis and avoid a troubling new instrument, the perpetualsubordinated bonds of Japanese banks, said analyst John Rubino in the ETF Daily News. Japanese investors onthe hunt for yields are eagerly snapping up perpetual subordinated bonds. Thesebonds never pay back principal, only yield 1% and are converted into equity ifthe issuer gets in trouble. Such bonds are effectively equities in disguise, butinvestors are buying them as they struggle to make returns in a low interestrate environment, The Nikkei reported.Rubino said investors are taking a flyer on bank stocks in a country with anover-leveraged financial system. Rubino reminded investors that bonds backed bymortgages written to people with no incomes were snapped up by a majority ofinvestors in the run up to the global financial crisis. These bonds and otherfinancial innovations eventually blew up and dealt significant damage toinvestors.
India's banks have some of the worst capital ratios amongemerging markets, Mint reported,citing a report from the IMF. Indian banks have an average Tier 1 capital ratioof 10.08%, the third from the bottom. Indian banks only have better Tier 1ratios than Russian and Chilean banks. The chart highlights the need for thegovernment to infuse capital into struggling Indian public sector banks, whichhave struggled with mounting bad loans that required them to increase theirprovisions for such debt. Fitch Ratings said in September that banks will need US$90 billion innew capital by fiscal 2019 to meet Basel III standards. The government hasalready released plans to inject additional capital into banks but Fitchbelieves that more capital injections will be needed to restore investorconfidence.
Government owned State Life Insurance Co. ofPakistan has been unseated as the most dominant player in the sector, the Dawn reported. SLIC's market share hasfallen to 50% from 57% in 2014, with seven to eight private insurance companiesholding the other 50% market share. Javed Ahmed, managing director of JubileeLife Insurance Co., said SLIC has slipped from its more dominant position asother insurers have stepped up. Most private life insurance companies havestarted offering Islamic products along with their conventional products. Ahmedsaid Jubilee Life is also the largest provider of health insurance in Pakistan.
Malaysian banks are realizing that their main competitorsare mobile app developers, not other banks, FreeMalaysia Today reported. Fintech startups are offering mobile-firstservices, such as payments and loans, that can steal customers from banks,warned Singapore FinTech Consortium co-founder Gerben Visser. Malaysian banksneed to keep up in terms of technology or risk losing customers to disruptivefintech firms. Visser noted that banks have core systems that are 20 to 30years old while fintech startups offer seamless systems. While local banks havenot felt the disruptive effects of startups yet, customers would not hesitateto jump to these firms once they realize that startups could offer morerelevant services.