Vietnam Stocks Enter Bear Market on Financial System Concerns

By Bloomberg News

Vietnam’s stocks plunged, dragging the benchmark index into in a bear market, on concerns the arrest of two banking officials last week may signal further instability in the nation’s financial system.

The VN Index fell 3.4 percent to 386.19 at the close on the Ho Chi Minh City Stock Exchange, extending the drop since the recent peak on May 8 to more than 20 percent, which some investors regard as a bear market. Bank for Foreign Trade of Vietnam, the nation’s largest lender by value, slid 5 percent. Asia Commercial Bank (ACB), whose credit rating was cut by Moody’s Investors Service after the arrests, plunged about 7 percent.

Moody’s lowered Asia Commercial Bank’s credit rating to B2 from B1 on Aug. 24 and put the company on review for future downgrades following the “negative developments at the bank,” it said. Nguyen Duc Kien, one of the bank’s founders, was detained Aug. 20 for what the central bank called conducting “business illegally.” That was followed by the arrest of former Chief Executive Officer Ly Xuan Hai by the police for alleged economic mismanagement, according to a police statement.

“The question is if last week’s arrests are just the beginning of something bigger, and investors are worried about that,” said Marc Djandji, a Ho Chi Minh City-based senior vice president at Indochina Capital. “There’s little clarity as to what’s going on, or if there’s something going on behind the scenes.”

Djandji is buying stocks because the valuations are “very compelling,” he said. The VN Index trades at 9.4 times of estimated earnings this year, the lowest in Asia after Pakistan, according to data compiled by Bloomberg.

Injecting Funds

State Bank of Vietnam injected 13 trillion dong ($623 million) 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.

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.

Vietnam Joint-Stock Commercial Bank for Industry and Trade, the second-largest lender, lost 4.9 percent, while Saigon Thuong Tin Commercial Joint-Stock Bank, known as Sacombank, fell 0.5 percent. The central bank started inspecting Sacombank in July and will complete the probe this month, Binh told lawmakers at the National Assembly last week.

The VN Index (VNINDEX) slumped 12 percent since Aug. 20 with the arrests of the two bank officials.
Fitch Ratings also placed Asia Commercial Bank on review for a possible downgrade, it said on Aug. 24. The lender’s long- and short-term issuer default ratings may be cut if there’s sustained weakening in the bank’s liquidity and reputation.

“Moody’s is concerned that these developments have resulted in pressure on the bank’s liquidity and that there could be longer-term negative consequences for the bank’s franchise value,” the rating company said.