Wealthy Vietnamese Face Backlash as Economy Worsens

Posted on August 24, 2012


Banking and soccer mogul Nguyen Duc Kien, center, spoke with players at a match in Hanoi last month.

The arrest this week of Vietnamese banking and soccer mogul Nguyen Duc Kien comes amid a growing backlash against Vietnam’s wealthy tycoons, as the country struggles with an economy that is going from bad to worse.

Some of Vietnam’s Communist leaders have never been entirely comfortable with their country’s pro-market reforms. Waves of liberalization have often been followed by periods of inaction.

Analysts now worry that combating politicians and a hostile public might thwart the reforms needed to recapture the stellar growth rates that once made the country one of world’s most sought-after emerging markets.

Plans for privatizations have stalled as bad debts have rippled through the banking system. Meanwhile, top executives at some state-owned enterprises have been arrested and charged with mismanaging state resources after the global financial crisis sent many businesses into a financial tailspin, exposing the shortcomings of Vietnam’s bid to catch up with its neighbors after decades of war and Marxist economic planning.

The shakeout is spilling over into the private sector. Politically connected tycoons such as Mr. Kien, who was arrested Monday and accused of running unlicensed investment firms, are facing growing scrutiny for allegedly skirting banking regulations. Mr. Kien or his legal representatives couldn’t be reached to comment.

In the latest developments Thursday, the chief executive of the bank that Mr. Kien helped found in the 1990s, Asia Commercial Bank, resigned for personal reasons. Ly Xuan Hai is now helping police with their investigation, a bank spokesman said, although authorities have stressed that ACB itself isn’t part of the probe and that Mr. Kien left ACB in 2010. Mr. Kien owns about 5% of ACB shares in addition to holdings in other Vietnamese banks. Mr. Hai couldn’t be reached to comment.

The share price of ACB, 15%-owned byStandard CharteredSTAN.LN +0.04% fell again in trading Thursday, down 6.7%. That decline helped to extend a series of sharp losses on the broader VN Index, which has lost 10.5% so far this week.

State-run media also reported Thursday that ACB was given access to up to 46 trillion dong, or $2.2 billion, in emergency central-bank funds to offset a brief panic among depositors.

A statement on the government’s website said Prime Minister Nguyen Tan Dung met with government agencies and law-enforcement chiefs on Wednesday and urged them to act quickly to stabilize the country’s banking system after bad debts doubled to about 10% of total lending in recent months.

The political infighting playing out in Hanoi could hamper reforms needed to clean up bad debts in the banking sector and get Vietnam’s economy moving again after expanding a sluggish 4.7% in the second quarter from a year earlier—well below the government’s 6% full-year target.

Other big names have fallen foul of the authorities in recent months. Businesswoman Dang Thi Hoang Yen became one of the first tycoons elected to the country’s National Assembly last year, but was ousted in May from the Communist-run legislature for failing to disclose that she was no longer a member of the party.

In the state sector, eight executives at Vinashin received prison sentences of up to 20 years in April after the shipbuilder nearly collapsed in 2010. It had racked up around $4.4 billion in debt.

Analysts say the crackdown is increasing pressure on Prime Minister Dung, the main architect of Vietnam’s rapid-growth policies. He survived a behind-the-scenes leadership challenge last year, but his power is being clipped further by the rise of rivals such as Communist President Truong Tan Sang, who is widely seen as a hard-liner, along with a national legislature that appears more willing to hold the country’s top leaders to account.

At the height of the Vinashin scandal, Mr. Dung apologized in a televised session of Vietnam’s National Assembly for failing to properly supervise state-run companies, and executives at other such companies have since been arrested.

“Vietnam and Mr. Dung pursued a policy of high growth at all costs, and they were willing to overlook many things in order to achieve that goal,” said Carl Thayer, a veteran observer of Vietnamese politics at the Australian Defence Force Academy in Canberra.

The backlash against Vietnam’s go-go years, when it averaged annual growth rates of more than 7% for nearly a decade, isn’t confined to the country’s inner political sanctum. Anger at currency devaluations and high inflation rates has demoralized many ordinary people in recent years.

Popular newspapers have run lurid stories about wealthy Vietnamese, accusing some of them of cutting open the skulls of live monkeys and scooping out their brains as a gourmet treat, just as the country’s old emperors were reputed to do.

This week, the Vietnamese press ran a series of pictures of Mr. Kien’s luxury cars, emphasizing the gulf between the new elites who grew rich during the Vietnam’s boom years, and the millions who now struggle with sky-high interest rates and the threat of currency devaluations and inflation.

Mr. Kien, who faces up to two years in prison for his alleged offenses, is an especially high-profile figure. The 48-year-old is instantly recognizable by his shock of thick, white hair and is as well-known for his soccer exploits as for his role in establishing Asia Commercial Bank. Last year, he took control of Vietnam’s new professional soccer league in a bid to increase attendance, and bought a premier league Hanoi Football Club after his other side was relegated.

“He’s a big celebrity here,” said Jonathan Pincus at Harvard University’s Fulbright Economic Teaching Program in Ho Chi Minh City. Mr. Kien’s arrest “will make people sit up and take notice.”


Vietnam arrests former bank director, widening probe into irregularities in shaky sector

HANOI, Vietnam — Police have arrested the former director of one of Vietnam’s largest banks as part of a widening probe into economic crimes that has spooked investors and added to doubts about the financial stability of a country once seen as an emerging Asian giant.

Former Asia Commercial Bank chief Ly Xuan Hai was arrested Thursday night for “deliberately acting against the state regulations on economic management,” hours after he resigned from the job and a replacement was named, the Vietnam News Agency reported Friday. The crime carries a maximum punishment of 20 years in prison, the agency said. It was unclear whether Hai had any lawyers, and no more details were available.

ACB said it had halted lending as a result of the troubles, but that it was operating normally. On Thursday, as rumors swirled about the bank, it said jumpy customers were withdrawing money from the institution, raising fears of a possible bank run.

On Monday, the bank’s co-founder Nguyen Duc Kien was arrested on allegations of “illegal trading,” triggering the largest ever drop on the country’s main stock exchange. ACB’s share price has dropped some 15 percent. Seeking to reassure the public, the central bank then said that Kien’s alleged crimes were not related to his past activities at ACB and pledged extra liquidity to the bank.

Kien withdrew from the management of ACB in 2010, but still holds stock there and in other Vietnamese banks.

Information is tightly controlled in Vietnam, but there has been speculation that the arrests of Kien and Hai were related to efforts by the communist government to reform the banking system, which has the highest level of bad debt in Asia and is hurting growth, currently running at around 4 percent.

Much of the debt is owed by state-owned conglomerates that were encouraged by the government to borrow money during the global economic crisis in 2009 and 2010 to try to create jobs. But many of them used the money to expand into other ventures, including speculation in the property market, and have been unable to repay the money. Efforts to clean up the system are believed to be causing tensions within the country’s tightly intertwined political and economic elite.

ACB, owned 15 percent by Standard and Chartered, was considered one of the better run of the more than 40 banks in Vietnam. Fears of more arrests are causing political uncertainty and unnerving those with exposure to banking stocks, contributing to the decline in investor confidence.

“It’s quite an ominous sign for ACB,” said Stephen Norris, a Vietnam analyst at Control Risks, a political and security consultancy group. “The fact they have arrested this guy suggests they have some quite serious dirt at him. Behind the scenes is a big power struggle about how they are going to deal with the bad debt. That is the driver of political tensions.”

Washington Post

Vietnam Stocks Fall Most in Asia

Vietnamese stocks approached a bear market this week as the detention of a banking tycoon sparked concern more arrests will disrupt the nation’s financial system.

Ly Xuan Hai, president and chief executive officer of Asia Commercial Bank. Photographer: Paul Hilton/Bloomberg

The VN Index (MXEF) rose 1.8 percent at close in Ho Chi Minh City, following a three-day, 10 percent tumble. The gauge has fallen 18 percent from its high this year on May 8, near the 20 percent decline some investors regard as a bear market. The measure traded for 9.5 times estimated profit yesterday, the cheapest level since May 25 and lower than the MSCI Emerging Markets Index’s 10.5 multiple, data compiled by Bloomberg show.

Asia Commercial Bank (ACB) tumbled 19 percent the previous three days after Nguyen Duc Kien, one of its founders, was arrested Aug. 20 for what the central bank called conducting “business illegally.” Vietnamese police said today they had arrested Asia Commercial’s former Chief Executive Officer Ly Xuan Hai. The benchmark money-market rate climbed to a four-month high amid concern about a cash crunch.

“Not every stock in Vietnam by any means is going to be implicated or involved in any way in this, so there’s an opportunity for brave investors to take advantage of some very cheap valuations,” Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management, which manages about $100 million, said by phone. “If we get some definitive news on what’s going on, that may provide a respite. But if there are more arrests, then there will be more weakness.”

Slumping Valuations
Asia Commercial shares gained 3.8 percent today in Hanoi. The stock’s three-day slump dragged its valuation lower yesterday to 6.1 times estimated profit, the lowest level since January, according to data compiled by Bloomberg.

Fitch Ratings placed the bank on rating watch negative, it said in a statement today after market close. The lender’s long- and short-term issuer default ratings may be cut if there are sustained weakening in the bank’s liquidity and reputation, according to the statement.

The lender’s former CEO Hai will be detained for four months from Aug. 23 while police investigate him for allegedly “intentionally violating state regulations on economic management, causing serious consequences,” according to a police statement on the government’s website today.

Hai was not reachable on his mobile phone. Asia Commercial appointed one of Hai’s former deputies, Do Minh Toan, as CEO late yesterday after accepting Hai’s resignation, according to an e-mailed statement from the lender.

Deputy CEO Nguyen Thanh Toai declined to comment on reports of Hai’s arrest and the police investigation when contacted on his mobile phone today. Some Asia Commercial branches faced crowds of customers wanting to withdraw funds in recent days, though their numbers had eased, Toai said when contacted by phone yesterday.

“Our situation is stabilizing,” he said. “We have mobilized enough funds to meet demand.”

Bank Stocks
The lender borrowed about 7 trillion dong ($335 million) from the central bank in open-market operations on Aug. 22 to “calm” depositors and sought to withdraw 36 trillion dong of loans from the interbank market to ensure it can cover its liabilities, according Deputy CEO Toai.

Joint Stock Commercial Bank for Foreign Trade of Vietnam, the nation’s biggest lender by market value, climbed 4 percent today after sinking 12 percent the past three days. Vietnam Joint-Stock Commercial Bank for Industry and Trade, the second largest, gained 4.1 percent after a 9.2 percent slump. Saigon Thuong Tin Commercial Joint-Stock Bank, known as Sacombank, added 2 percent after tumbling 14 percent.

PXP’s Snowball said he bought stocks yesterday, declining to be specific. Consumer staple and agricultural companies “look pretty good,” he said. Vietnam Dairy Products Joint- Stock Co. (VNM), the nation’s biggest listed dairy producer, accounts for 8.2 percent of his $34.4 million Vietnam Emerging Equity Fund. The stock rose 2 percent today after a 4.7 percent slump yesterday dragged its valuation to 11.6 times estimated profit, the lowest level since Aug. 8.

Foreign Purchases
Overseas investors bought a net $15 million of Vietnamese equities in the past four days, headed for the biggest weekly purchases since the week to March 30, Ho Chi Minh City exchange data show. Tran Dac Sinh, the bourse’s chairman, was not reachable on his mobile phone.

“Even though stock prices have fallen, liquidity in the market has increased significantly,” the Hanoi Stock Exchange said in an e-mailed statement yesterday. Foreign investors are “not affected by psychology and took the chance to buy stock at low prices,” according to the statement.

More than half the VN Index (VNINDEX)’s 303 companies fell at least 4 percent yesterday. The State Securities Commission urged investors to stay calm, saying it will intensify monitoring and “strictly deal” with investors who spread rumors, according to a statement on the regulator’s website yesterday.

Hoarding Cash
“The Vietnam issue is more about confidence than market valuations,” said Gavin Parry, managing director of Hong Kong- based Parry International Trading Ltd. “The high probability of more high-profile banking arrests is creating uncertainty for the banking system. The central bank has stepped in to assure it will cover its liabilities.”

The nation’s benchmark money-market rate has more than doubled in the past week on concern banks will hoard cash to meet customer withdrawals. The overnight interbank deposit rate gained 20 basis points, or 0.2 percentage point, today to a four-month high of 6.80 percent, according to data from banks compiled by Bloomberg. A 198 basis-point jump on Aug. 22 was the biggest since December 2010.

State Bank of Vietnam injected 13 trillion dong into the financial system through open-market operations on Aug. 22, the most over a seven-day period this year. Governor Nguyen Van Binh said Aug. 21 the monetary authority stands ready to ensure banks have adequate cash after Kien’s detention.

Political Rivalry
“Although the central bank has been supplying quite a lot of liquidity to open market operations over the last couple of days, interbank rates have risen quite sharply,” Fiachra MacCana, managing director of brokerage Ho Chi Minh City Securities Corp., said by phone yesterday. “This appears to have reduced liquidity, especially for some smaller banks.”

Prime Minister Nguyen Tan Dung’s government is seeking to shore up a banking system saddled with the highest bad debt in Southeast Asia that credit-rating companies cite as a threat to the economy. The arrest of Kien, who has links to the prime minister, may also be related to Dung’s rivalry with President Truong Tan Sang for power within the Communist Party ranks, Steve Norris, a Singapore-based analyst at Control Risks Group, said this week.

Dung was reappointed to a five-year term last year. Sang formerly headed the Central Committee’s central economic commission before he was appointed as president last year, one of the country’s top three leadership positions.

Vietnam’s stock exchange in Ho Chi Minh City started trading in 2000 with shares of four companies that began as state-controlled businesses. The first private company was listed four years later and a second bourse in Hanoi opened in 2005. The two exchanges now have about 700 stocks.


Top Tycoon Arrested

The arrest of one of Vietnam’s richest businessmen sends shockwaves through the country.

Vietnam has arrested a top banking mogul on suspicion of undisclosed financial crimes, the government said Tuesday, putting a spotlight on the country’s beleaguered banking sector, state-linked corruption, and the need for reforms.

Nguyen Duc Kien, 48, a key shareholder in some of Vietnam’s largest financial institutions, was taken into custody Monday afternoon in Hanoi after police raided his home and seized documents.

The multimillionaire cofounder of one of the largest banks in Vietnam, the Asian Commercial Bank (ACB),  was arrested for “illegal business activities” in connection with three private companies he chaired, the Ministry of Public Security said Tuesday.

Vietnam’s weak banking sector is poorly regulated and laden with bad debt stemming from years of high inflation and plunging asset prices.

Le Dang Doanh, one of Vietnam’s leading economists and former adviser to the prime minister, said Kiem’s arrest, which comes as the ruling Communist Party of Vietnam broadens an anti-corruption drive launched last month, was an important sign of better rule of law in the country.

“The arrest is a good signal for the implementation of laws in Vietnam. It is a strong sign that [even] such rich people in Vietnam cannot evade legal punishment if they commit a crime,” he told RFA’s Vietnamese service.

But he said the case also exposes further necessity for reforms.

“The conclusion to this case is not [just] a sentence for Kien, but [the conclusion to be drawn from the case is] that it is important for reform to be undertaken in a serious way.”

Ironically, Kien was reportedly involved in drafting the country’s new bank reforms.

He is said to hold shares in ACB, Sacombank, Eximbank, VietBank, according to Agence France-Presse.

Confidence lost

ACB, which counts global banking giant Standard Chartered as one of its “strategic partners,” issued a statement on Tuesday asserting Kien’s arrest would not impact its performance, saying the businessman’s arrest was a “personal issue” and that he was no longer a major shareholder in the bank.

“The detention of Kien is the decision of the authorities so it does not affect the normal operation of the bank,” ACB Deputy General Director Nguyen Thanh Toai said.

But news of the arrest triggered the largest stock market drop in almost four years, according to Bloomberg News, with ACB’s share price plunging seven percent by the close of the Hanoi Stock Exchange on Tuesday.

Nguyen Van Binh, the head of Vietnam’s central bank, said that he was aware of the risk of fallout from Kien’s arrest and that the State Bank of Vietnam was ready to intervene to check any market chaos.

Kien is also well known in Vietnam’s soccer world as the chairman of Hanoi Football Club and was among the founding members of the Vietnam Professional Football Jointstock Company that runs the popular V-League soccer association.

Analysts say his arrest may signal infighting between factions linked to the prime minister, with whom Kiem is seen as being aligned, and the president.

Some of the political elite may be concerned that the prime minister has amassed too much power “and needs to be pulled back in a peg,” Carl Thayer, a Vietnam scholar at the University of New South Wales in Australia, told Agence France-Presse.

“The atmosphere for some reason is just right for going after big fish,” he said.