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Hanoi is eager to seize the chance for economic reform

HANOI -- Vietnamese Prime Minister Nguyen Tan Dung was more forceful than usual with his ministers at the government's monthly meeting in Hanoi in January. "If we are to achieve 6.2% economic growth this year, it's essential to tackle reforms of state-owned companies as well as financial institutions," he insisted.

     The prime minister is eager to act because the Vietnamese economy is showing signs of pulling out of its post-2008 financial crisis doldrums. Solidifying this upward trend is a major challenge facing Vietnam this year, and success largely hinges upon reforms.

The headquarters of the State Bank of Vietnam in Hanoi (Photo by Ken Kobayashi)

     The government clearly realizes this. The State Bank of Vietnam, the country's central bank, has obligated commercial banks to sell all their bad debt to Vietnam Asset Management Co. by the end of September. VAMC will then sell the debt to foreign and domestic investors. To pave the way for the securitization of bank debt, the government plans to ease restrictions on foreign purchases of Vietnamese real estate starting in July.

     But there is a catch: Banks will be required to buy back their debts if they remain unsold five years later. That could become a matter of life or death for weaker banks. For this reason, the central bank is pushing ahead with a bold realignment of the banking sector, seeking to consolidate about 40 Vietnamese lenders into 15 or so.

     Since January, reports of bank merger have been in the news almost daily. Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Saigonbank, Maritime Bank and Mekong Development Bank, and Bank for Investment and Development of Vietnam and Mekong Housing Bank are among the pairs that have combined operations so far. The central bank will consolidate six to eight more banks this year, including financially sound ones, Gov. Nguyen Van Binh said.

An answer in equitizing

A plunge in the property market after the Lehman shock of 2008 is partly to blame for the piles of nonperforming loans at Vietnamese banks -- but government-owned companies played a part as well. Banks made ill-advised and overly generous loans to these companies in amounts that often exceeded the borrower's ability to repay.

     In its efforts to overhaul state-run enterprises, the government is focusing on equitization -- selling some of these companies' shares to investors. Stock prices, which had remained sluggish since the late 2000s, picked up in 2013. Last year, 216 companies, including leading textile company Vinatex and Vietnam's largest airline carrier, Vietnam Airlines, were equitized. The government intends to equitize 289 more this year, including shipping company Vinalines and mobile phone operator MobiFone.

     The main aim of this process is to enhance the competitive edge of Vietnamese companies by inviting foreign investment, which the government hopes will heighten management efficiency and improve transparency. The country's top food company, Vietnam Dairy Products, better known as Vinamilk, saw just such a result. Its market capitalization now stands at about $5 billion, the country's second-largest after that of state-owned PetroVietnam Gas.

     Many investors, however, are thinking twice before buying shares in equitized companies. In April, Vinacomin-Power, a subsidiary of major coal mining company Vinacomin, put on sale 237 million shares, or 34.76% of its total outstanding. Only 0.5%, or 1.2 million shares, were bought. "State-run companies' information disclosure is so poor that it's possible we would find serious problems only after investing in them," a senior official at a Japanese trading house said.

     The economic integration of the Association of Southeast Asian Nations, the ASEAN Economic Community, will be launched late this year, with tariffs to be almost entirely removed within the bloc in 2018. The Trans-Pacific Partnership agreement is also likely to be concluded before too long. In order for Vietnam's businesses to survive increasingly stiff international competition, it is vital that government-owned companies and banks improve their management efficiency. Reforms of these sectors will play a large part in determining the future of Vietnam.

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