SOEs urged to pull away from banking sector

State-owned firms’ divestments for banking sector have generated industry insiders’ diverse sentiments.

According to a Ministry of Finance’s recent report, by late 2010 state-owned enterprises (SOEs) and groups pumped over VND10 trillion ($482.2 million) into the banking sector, outrunning their investment into other areas.
SOEs’ investment into banking sector in the previous year was also remarkable. It stood at VND7.97 trillion ($379.8 million) in 2007, shooting to VND11.427 trillion ($544 million) in 2008 before sliding to VND8.734 trillion ($416 million) in 2009.

Pursuant to government’s guidance which requires SOEs to divest from non-core businesses to focus on key operations, some SOEs made efforts to divest from the banking sector. However, the outcomes fell short of what projected. That was largely because most state groups holding bank shares were cautious with divesting from this lucrative area.

Vinacomin chairman Tran Xuan Hoa said banking sector divestiture needed to follow a concrete trajectory. “We will wait for more details from the government and the National Assembly about our group’s divestiture plan,” said Hoa.

Vinacomin reportedly injected around VND300 billion ($14.2 million) into diverse business entities such as the Saigon-Hanoi Bank (SHB), SHB’s Securities Company (SHS) and SHB-Vinacomin Insurance Company.

A state cement conglomerate Vicem executive said to shirk possible collapses, SOEs should not be obliged to divest from banking and financial areas in haste.

A Petrolimex representative assumed banking area investment should not always be regarded as outside investment ventures. For instance, Petrolimex has pumped money into a joint venture bank with India and the deal targets to serve its core business of petroleum import. “Otherwise, this deal generates us good returns,” said the representative.

In the face of strong reactions from the business community, a member of the National Financial and Monetary Advisory Council Tran Hoang Ngan assumed the government’s policy forcing SOEs to divest from non-core businesses was a smart move as in fact non-core businesses such as stock trading and property put burdens on SOEs.

“Divestitures at this point of time may cause losses to state coffers. However, sometimes we must accept to pay dearly for something to get the SOEs’ restructuring process get on track with projected targets,” said Ngan.

Former State Bank governor Cao Sy Kiem assumed divestitures should be considered based on specific cases.

The Ministry of Finance is drafting a decree on state capital investment into enterprises and financial management towards wholly state-owned firms, which would be submitted to the government later this year. The draft regulates SOEs’ investment into banking, insurance and securities areas must not exceed 10 per cent of recipient firms’ chartered capital.

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial