Since the crisis in 2012, when total bad debts, mostly in the real estate sector, hit VND280 trillion ($12.5 billion), equivalent to a staggering 11 per cent of GDP, Vietnam’s banking sector has been aggressively restructuring its operations, leadership and loan books in response to the large number of non-performing loans (NPLs) plaguing the industry. Most if not all banks had to sell their NPLs to the Vietnam Asset Management Company (VAMC) to clean up their balance sheets.    

From a shareholder perspective, this was not good news, as most banks had to significantly scale back their earnings and were forbidden from paying dividends. 

Only in 2017 were a handful of banks, including the Orient Commercial Bank (OCB), given approval to pay a cash dividend. Eximbank, however, remains unable to do so. 

In its recent annual general meetings (AGMs), the bank failed to get its shareholders on board with regard to its restructuring and dividend plans. 

Internal conflict

As its name indicates, Eximbank’s operating strengths are in the areas of export-import trade finance and international settlements. 

The bank is also involved in loan asset management and liquidation services, securities brokerage, and real estate investment services through affiliate companies and subsidiaries. 

Apart from the State, which holds 51 per cent, Eximbank has two other major shareholders: Japan’s Sumitomo Mitsui Banking Corporation (SMBC) and Vietcombank, with 15 per cent and 8.19 per cent, respectively.

Once a leading commercial lender, the Ho Chi Minh City-headquartered bank is undoubtedly the case study for the continuous fight over control between large shareholder groups. 

In a letter sent to the State Bank of Vietnam (SBV) and relevant authorities last July, Mr. Dang Phuoc Dua, who represents a group with a 10.3 per cent holding, accused the Board at that time of working ineffectively and not respecting shareholders. 

“They are not sufficiently responsible, which has led to a decline in financial activities and a loss in market share,” the letter stated.

The smoldering conflict at Eximbank has remained unresolved for quite a period of time. In 2015, it postponed its annual Board meeting three times, to the end of July. 

The matter was so serious that the State, via the SBV, eventually stepped in and assigned staff to Eximbank’s Board. 

Accordingly, Mr. Le Minh Quoc, a former executive at the State-owned Vietcombank, took the helm as Chairman in late 2015. 

With deep experience from leading BNP Paribas in Vietnam for several years, he was widely considered to be commercially oriented and grounded and a suitable candidate to strengthen Eximbank’s operational efficiency and brand equity while expanding its customer base.

But shareholders, again, did not hold consistent views with regard to the restructuring and growth plans of the bank. Eximbank held its annual meeting twice in 2016, with both failing to gain a quorum of 65 per cent of shareholders. 

An extra-ordinary shareholders meeting was then scheduled for August 2 but was postponed, as the central bank requested the bank check information regarding shareholder group rights to nominate candidates to the Board.

Like most other Vietnamese banks, Eximbank last year focused on recovering and resolving major NPLs under the SBV’s guidance. 

According to its 2016 consolidated financial statement, NPLs rose from 1.86 per cent from end-2015 to as high as 5.3 per cent as at the end of June, before falling to 2.95 per cent as at the end of December, thanks to the conversion of bad debts to bonds from VAMC. 

“Although the level of VAMC loans is higher than the sector-wide average of 5 per cent, it is worth mentioning that Eximbank has been more transparent in their bad debt disclosure than other banks,” a domestic banking expert told VET.

A low net interest margin of 2.9 per cent, which was lower than the bank’s average of 3.3 per cent in the years before restructuring, took Eximbank’s after-tax profit to a modest $13.5 million at end-2016. 

It incurred higher operational costs during the year, of about 60 per cent of total income, for resolving its NPLs. 

The bonds issued by VAMC for $310 million worth of NPLs are being amortized at 10 per cent per annum, which Eximbank is costing at a rate of $30 million to $35 million every year.

On a positive note, the bank saw better-than-expected business performance during the first quarter of this year, posting VND170 billion ($7.48 million) in pre-tax profit and VND136 billion ($5.98 million) in after-tax profit. 

Customer loans had increased 0.52 per cent since end-2016 to VND86.43 trillion ($3.8 billion) while customer deposits were up 7.75 per cent quarter-on-quarter to VND110.3 trillion ($4.85 billion) as at end-March. 

The bank cut down its risk provision expenses in the quarter, which accounted for 91.8 per cent of its operating profit, to only 43.8 per cent during the first three months, making pre-tax profit rise 5.6-fold year-on-year to VND170 billion ($7.48 million) as at March 31.

New Eximbank

It has taken much longer than anticipated to complete the first phase of its restructuring, but with the success of the most-recent AGM in April, the bank’s shareholders are now on board and have tasked the new Board - consisting of three representatives nominated by VinaCapital, including Chairman Mr. Quoc, as well as two representatives from SMBC, two representatives from the central bank, and two independent board members - with building a “New Eximbank” over the next four years.

A May 3 meeting between Deputy Prime Minister Vuong Dinh Hue and Mr. Ryuji Nishisaki, Head of the Emerging Markets Business Division at SMBC, made it clear that Eximbank cannot solely dictate its own fate. 

“Eximbank has been a leading joint stock bank and does not have the experience to make a major change by itself,” newly-elected Board Member and also Head of the New Eximbank plan, Mr. Yutaka Moriwaki, told VET, adding that the bank itself needs to motivate good and capable staff or even recruit talent from outside while maintaining cost efficiency. 

Having touched on the matter at a press conference held ahead of the 2017 AGM, Mr. Moriwaki said the absence of a sound business strategy and low staff morale caused by frequent leadership changes are unresolved issues facing Eximbank. 

This, though, will be dealt by the “establishment of a fair and transparent human resources system, including setting key performance indicators (KPI) and performance evaluation processes (PEP) to motivate staff,” he said, adding that the restructuring plan will reorganize the decision-making process so that the responsibility of every manager and staff will be made clear.

Building the New Eximbank also relies on leveraging its wide distribution network, consisting of 209 locations and 265 ATMs, to expand its retail banking business, while also focusing on trade financing via the establishment of a wholesale banking division and short-term working capital loans to strengthen the bank’s traditional small and medium-sized enterprise (SME) business. 

“At the same time, the bank’s credit risk management and NPL collection will be strengthened,” Mr. Morawaki said, revealing that SMBC has already sent a trade finance expert to lead the wholesale banking division. 

The new Board projects 54 per cent profit growth this year with an acceleration of credit growth and an expected slowing of growth in loan provisions. 

The ongoing restructuring activities and the bank’s new strategy is set to support the expansion of lending activities, with a focus on retail and SME customers. 

Credit growth is expected at 10-15 per cent this year, while the net interest margin will be maintained at the same level in 2016 as the bank competes with competitive lending rates. 

The bank also targets better management of operating costs to reduce the cost-income ratio (CIR) to below 60 per cent amid the pressure of developing retail banking activities.

Half-success

Not all activities of the previous Board can be forgiven. A recovery option proposal for previous fraud regarding the business activities of Eximland - Eximbank’s real estate development arm - was scrapped by shareholders at the latest AGM. 

Two years ago, an inspection conducted by the SBV’s Banking Supervision Agency found that Eximbank lent funds to Eximland and the loans were then used to buy real estate from the bank itself. 

With Eximbank’s closing account increasing its income as at December 31, 2013 by VND1.11 trillion ($49.26 million), on which it paid tax, set risk provisions, and paid dividends to shareholders from 2010 to 2013, the inspection team said the closing of the booking account for that income while Eximbank was still managing and using real estate did not follow the accounting regime at that time.

Furthermore, the new Board was unsuccessful in winning shareholder approval for its remuneration and expenses proposal for 2017. 

This could be explained by two things: the overpayment of remunerations for the old Board from 2013 to 2015, which are yet to be recollected, together with the zero dividend payout to shareholders in 2015 and 2016. 

Now that its AGM has finally ended, the new Board can fully focus on Eximbank’s business activities. 

Still, shareholder disapproval proves just one thing: it is equally important for Eximbank to regain shareholder trust as it is to regain its competitiveness. 

Pulling out a successful restructuring process may not be enough, but is the only solution the new Board has come up with to date.  

VN Economic Times