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Vietnamese bank's shares surge on China buy talk as ownership cap may be lifted

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Vietnamese bank's shares surge on China buy talk as ownership cap may be lifted

Shares in Vietnam's fourth-largest listed lender by assets have surged on speculation that it is a takeover target, as national authorities indicate they could waive a 30% cap on foreign ownership in some cases in a plan to revamp the country's underbanked financial sector.

Saigon Thuong Tin Commercial Joint Stock Bank's stock has jumped more than 16% on the Ho Chi Minh stock exchange since Jan. 3, outpacing a 3.76% rise in the Vietnam Hanoi HNX Index, on talk that Bank of China Ltd. wanted to buy a 30% stake.

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Sacombank shares jumped to 10,200 dong on Jan. 25, from 8,790 dong on Jan. 3, driven by speculation that the Chinese bank was preparing to strike, two fund managers told S&P Global Market Intelligence.

With assets of US$14.35 billion as of Sept. 30, 2016, Sacombank is already approximately 7% held by foreign investors including Van Eck Associates Corp., Eaton Vance Management and Lion Global Investors, so a BOC buy would take it past the existing ownership limit. But the cap on foreign holdings in banks may now be removed on a case-by-case basis, the State Bank of Vietnam has said, clarifying an earlier announcement by Prime Minister Nguyen Xuan Phuc.

"It is certainly credible that BOC might want to go for Sacombank, because a lot of foreign banks have wanted to get a foothold in Vietnamese banks because of the latter's good prospects," one of the managers, Bill Stoops, chief investment officer at Dragon Capital, said in an interview.

Both Sacombank and BOC declined to comment on the speculation.

Room to grow

With only 20% of the Vietnamese population holding a bank account, much lower than the regional norm, there is scope for the financial sector to grow considerably, especially in retail, according to PricewaterhouseCoopers. As they signal a greater willingness to accept foreign investment, Vietnamese authorities have been trying to tackle bad loans and reduce complicated patterns of investor crossholdings, but challenges remain, the consultancy said. Vietnam's economy is likely to continue its recent GDP growth rate of about 6% a year, IMF data shows.

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Japanese banks so far have been at the forefront of the foreign push into Vietnamese banks, with Bank of Tokyo-Mitsubishi UFJ Ltd. taking a stake in Vietnam Joint Stock Commercial Bank for Industry & Trade, or Vietinbank.

Sumitomo Mitsui Banking Corp. holds a stake in Vietnam Export Import Commercial Joint Stock Bank, or Eximbank, while Mizuho Corporate Bank has a holding in Joint Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank.

Singaporean sovereign wealth fund GIC Pte. Ltd. also planned to invest in Vietcombank before local authorities withheld approval for the deal.

But attracting more foreign capital may require moves such as bringing in rules on classifying bad debt and setting provisions closer to international standards, as well as providing more transparency in managerial structures and better disclosure of information, alongside a lifting of the cap on holdings, Nguyen Hoang Nam, deputy general director of PwC Vietnam, wrote in late 2016.

Over the past five years, Vietnam has made progress in restructuring small and uncompetitive commercial banks without systemic disruption, leading to the creation of larger lenders capable of competing regionally, such as Vietinbank and Vietcombank, Nam said. Authorities have also put limits on the power of major shareholders and on cross-ownership between different banks.

The ratio of Vietnamese banks' nonperforming loans to total loans has fallen to below 3% from more than 17% in September 2012, official figures show, although differences between local and international reporting standards have added to some analysts' suspicions that the true figure is higher. The government-owned Vietnam Asset Management Co. was set up in 2013 to buy bad debt from banks.

An increase in the foreign investment limit on a case-by-case basis is meant to attract strategic investors, Kevin Snowball, chief executive and chief investment officer at PXP Vietnam Asset Management, said in an interview.

"I think for stock market investors, there won't be a real change. I think what's going to happen is the weaker the bank, the more foreign ownership there will be," he said, adding that Vietnam's chances of meeting its target of promotion to the MSCI Emerging Markets Index from the company's Frontier Markets Index are slim unless it allows easier access to foreign capital. Pakistan was upgraded in June 2016.

Moody's changed its outlook on Sacombank's B3 credit rating to negative in October 2016, citing "high solvency and liquidity risks" following its merger with Southern Commercial Joint Stock Bank, or Southern Bank, at the end of 2015. B3 is six notches below investment grade. The merger boosted Sacombank's problem assets, said Moody's, expressing further concern about tardiness in publishing its unaudited financial report for 2015 and the management of most of its shares by the State Bank of Vietnam.

More clarity is needed on the government's intentions regarding the cap on foreign ownership, Daphne Cheng, a Moody's analyst in Singapore, told S&P Global Market Intelligence, adding that she was doubtful a substantial stake in Sacombank would soon be sold to any buyer from abroad.

"They want to lift foreign ownership but the execution is not straightforward. It takes more than an announcement for us to believe," she said.

As of Jan. 26, US$1 was equivalent to 22,592.50 Vietnamese dong.

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