Bankers find SME customers most attractive

In a complete about-face from earlier this year, lenders are now falling over themselves to grant business loans, especial to smaller firms – as long as they can meet eligibility requirements.

Small- and medium-sized enterprises (SMEs) are now the target customers of local banks, which should be focusing on providing more services to meet their needs, bankers have said.

Speaking at a conference in Hanoi last week, Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien said many SMEs often complained that they found it difficult to get bank loans without stopping to think why.

Statistics showed that only 15 percent of applications for loans are rejected, mainly because the companies who lodged them didn’t meet eligibility requirements, Tien said.

The Vietnam Industry and Trade Bank, or VietinBank, said the loans given to SMEs stood at about VND45 trillion (US$2.6 billion), accounting for 40 percent of its total loans.

OceanBank said 80 percent of its loans were to SMEs.

State-run Agribank, Vietnam’s largest lender, said credit growth for SMEs at the bank in the first 10 months increased by 14 percent over the same period last year.

All bankers attending the conference said they considered SMEs their target customers and they always tried to have flexible lending policies to attract more SME customers.

SMEs, or businesses with a capital of less than VND10 billion ($590,000) or having less than 300 employees, comprise around 90 percent of all enterprises in Vietnam. According to statistics released at another forum during last week’s SME National Week 2008 in Hanoi, SMEs have contributed more than 40 percent of the country’s gross domestic product and created jobs for nearly 3.4 million people.

Nguyen Thi Lan Anh, head of customer service at VietinBank, said there was no difference between a large and a small company and the only thing that mattered to banks was whether a company was creditworthy or not.

Even though VietinBank aims to become a leading bank in providing services to SMEs, it cannot give loans to companies without a strong equity base, transparent financial reporting and a feasible business plan, Anh said, noting it was important for them to show that they could meet the repayments.

Many bankers said businesses should stop thinking that they are asking for money and whether they are granted loans or not is a measure of the generosity of the banks.

Sacombank Chairman Dang Van Thanh said SMEs need to be more confident in their relationship with banks because they were the most attractive customers of not only banks but also other financial institutions.

Investment firm VinaCapital, for instance, said it was planning to boost investment into unlisted companies, most of which are SMEs.

The competition among financial institutions is fierce as they all want to attract as many SME clients as possible.

Agribank said it would cooperate with industry associations and provide long-term loans for SMEs to upgrade their production technologies.

Both OceanBank and Sacombank have recently launched new services to help SMEs restructure their financial systems.

Meanwhile, VietinBank said it is completing a credit rating system so that it can make lending decisions more easily later.

“If banks diversify their products and introduce suitable services to SMEs, they will be able to open the door to the most promising credit market,” OceanBank Chairman Ha Van Tham said.

With credit growth recently slowing down, the need to attract more SME customers has become even more urgent for banks. Many banks said they are having difficulties managing a surplus of capital set aside for loans.

Trang Thi Thuy Lien, general director of Lien Phat Footwear Company, said many SMEs like hers are not seeking bank loans at the moment.

The global economic slowdown has hurt the company’s exports to Europe and so it was cutting back on production, rather than expanding, she said.

Mai Tong Ba, director of Asia Commercial Bank’s Saigon Branch, said there were no businesses applying for new loans at the branch and its credit growth was now only about 20 percent over the same period last year.

Huynh Song Hao, deputy director of Vietcombank Ho Chi Minh City, said although banks have lowered lending rates, businesses don’t want to borrow.

The State Bank of Vietnam cut three percentage points off its benchmark rate in the four weeks to November 20, prompting commercial banks to lower their lending rates.

The current lending rates among commercial banks are 14-15 percent per year. Last year, the highest annual rate was 12 percent.

Source: TBKTSG

Citigroup flop exposes folly of empire-building

Sandy Weill never dreamed Citigroup Inc. would end up as a ward of the government.

When he merged Citicorp and Travelers Group Inc. in 1998, Weill envisioned the ultimate financial-services empire – peddling checking accounts, stock brokerage, investment banking and commercial loans around the world.

Today, five years after his retirement as chief executive officer, Citigroup has collapsed under the weight of massive bad market bets.

After the company’s stock closed on November 21 at US$3.77, down 87 percent for the year, the US government threw more aid at the giant to prevent a run on the bank by customers.

The Feds agreed to back up $306 billion of Citigroup bad debt, covering 90 percent of losses after the bank absorbed the first $29 billion. The government also infused $20 billion into the bank with a purchase of preferred stock. That was in addition to the $25 billion of Citigroup preferred shares it bought in October as part of a plan to recapitalize US banks.

Citigroup’s failure undercuts the strategy of many US businesses. Bigger is better, CEOs argue. Only the big survive in a cutthroat world. What they don’t say is, I get paid more if my company gets larger. In the years 2000 through 2005, Sanford I. Weill took $83 million in bonuses for his work at Citigroup.

Weill and his successor, Charles Prince, might argue that they had bad luck. No one predicted the collapse of the credit markets that followed the excesses of the US mortgage business. Still, wasn’t the Citigroup financial powerhouse built to survive any crisis?

Better that they should acknowledge the colossus was a bad idea, and their own poor management. Citigroup’s $66 billion in write-offs for bad loans proves a reckless approach to investments. On Weill’s watch, Citigroup issued fraudulent reports on stocks and paid billions of dollars to settle charges it misled bond buyers.

The government may have let current Citigroup CEO Vikram Pandit remain at the helm because he has been in charge only since December – leaving most of the blame to Weill and Prince.

Citigroup shares Thursday rallied along with the rest of the stock market after the company’s second bailout, climbing to $5.95. Standard & Poor’s 500 Index also rose 6.5 percent that day.

US taxpayers can only hope this latest government move is the answer to the credit-market woes. If banks start trusting each other again, losses on the bad-loan deal with Citigroup might be minimal.

There’s also a chance the government will earn a little money for its efforts. For the new $20 billion in cash, it gets $27 billion in Citigroup preferred stock, paying an 8 percent dividend. The Feds also get an option to buy a 4.5 percent stake in Citigroup common stock.

Weill’s Citigroup stock prospered for a time after his merger, topping $50 on occasion. But the shares began falling steadily in the spring of 2007. Citigroup’s best strategy now may be to undo what Weill wrought and Prince tried to manage.

“We should be thinking about breaking this company up and redistributing the assets into stronger hands,” said Christopher Whalen of Institutional Risk Analytics, a research firm in California.

Let’s hope Bank of America CEO Kenneth Lewis is paying attention. Lewis bought Countrywide Financial Corp. to beef up in mortgages, and is buying Merrill Lynch & Co. to add stock-brokerage and investment-banking assets. Does he really want to mimic Citigroup?

Reported by David Pauly*

* David Pauly is a Bloomberg News columnist. The opinions expressed are his own.

Stock market poised to resume downward path

Investors at the Ho Chi Minh Stock Exchange heaved a sigh of relief at last Friday’s rally but analysts remain cautious, expecting the market to resume its slump this week.

The VN-Index, Vietnam’s main stock index, regained 11.2 points, or 3.69 percent, to close at 314.74 on Friday after diving to a three-year low of 303.54. The index has lost 66 percent of its value this year.

The HaSTC-Index of the smaller Hanoi stock exchange staged a rebound of 6.75 percent last week to close on Friday at 104.2 points. During the day, the index dipped below 100, the level it started trading at in 2006.

“It’s now impossible to know whether the VN-Index will fall below the resistance level of 300 points. But in my opinion, the market remains in a downward trend,” said Nguyen Ngoc Tuoi, CEO of Kim Eng Securities Co. “Therefore investors should think twice before trading stocks.”

Unlike the previous weeks, sentiment on Vietnam’s stock market last week didn’t track global markets but seemed to be focused solely on the domestic economy, said Fiachra MacCana, research director of the Ho Chi Minh City Securities Corp.

“Despite Wall Street’s recovery on November 21, the HCMC market still retreated on Monday over growing worries about a slowdown in the economy” said MacCana, adding investors will begin dumping shares even more heavily if the VN-Index drops below 300 points.

In its latest report, Vincom Securities Corp.’s research department also said the market would remain gloomy in the medium-term. “However, investor confidence is upbeat over the five packages the government announced to stimulate the economy, including a delay in collecting the capital gains tax until July next year, a cut in corporate income tax by 3 percent to 25 percent,” the brokerage said.

It also expects the market will rally in the short-term. “If the global markets don’t post any sharp falls, the rally may last until middle of next week,” Vincom Securities Corp. said.

PVD and steel marker stocks top picks this week

Oil driller PV Drilling (PVD) and Hoa Phat Group (HPG) could be among this week's gainers.

“Many investors have opted for PVD, which has shown a healthy recovery since June,” said Fiachra MacCana.

PVD, which offers technical services to the oil and natural gas industry, rose 3.6 percent on Friday to close at VND72,500. It was among eight stocks that rose on all five trading days last week. Technical analysis showed the firm’s share price will enter a new rising period.

Steel stocks, meanwhile, may move into positive territory after the Ministry of Planning and Investment increased the import tax of steel ingot to 5 percent from zero to protect domestic makers from overseas competition.

The ministry also proposed an increase in the imported tax of finished steel to 20 percent from the current 10 percent.

Along with Hoa Phat Group, the country’s largest steel producer, analysts expect other makers – including SMC Investment - Trading Joint Stock Co. (SMC), Vietnam - Italy Steel Joint Stock Co. (VIS), Viet Han Corp. (VHG) and Ho Chi Minh City Metal Corp. (HMC) – will be best choice for small-time investors.

Reported by Tuong Chau