Banking Sector Update: Vietnam, Cambodia and Myanmar
Numerous developments have recently occurred in the banking sectors of Vietnam, Cambodia and Myanmar. These include an attempted cyber fraud attack on a Vietnamese bank, the biggest acquisition of a Cambodian financial institution, and a Myanmar bank becoming the first local bank to expand beyond the country’s borders. Here are some of the key developments that Access Asia has been closely following in a sector that presents ample opportunities for foreign investors in all three countries.
Vietnam
Vietnam’s tech-savvy TP Bank thwarts cyber fraud attack
Vietnam’s Tien Phong Bank (TP Bank) recently reported to regulators that it had thwarted a cyber fraud attack late last year involving suspicious requests through fraudulent messages on the SWIFT global financial messaging system. The bank identified the fraud attempt in time to thwart the transfer of over 1 million Euros, but the attempted attack has highlighted the rising risk of cyber fraud against financial institutions world-wide, particularly in developing countries that often lack the technological resources to detect and thwart such attacks.
SWIFT has called for an industry-wide action against cybercrime following the latest attempted attack on TP Bank and has urged members to “urgently review” payments and messaging controls. Security experts believe the group behind the attack was the same group responsible for a similar attack in February when $81 million was stolen from the State Bank of Bangladesh’s account at the New York Federal Reserve – money that reportedly ended up in the Philippines. Security software company Symantec believes the hacking group – dubbed Lazarus with reported links to North Korea – is conducting a “wide campaign against financial targets in the region,” and urges financial institutions to be vigilant.
While it is unclear why the hackers targeted TP Bank other than its small size, the Hanoi-based lender is widely considered to be one of the most modern and tech savvy banks in Vietnam. It was founded in 2008 by the country’s leading IT firm, FPT Corporation. Just days before the attempted attack was reported to Vietnamese regulators, the bank was awarded the “Best Internet Banking” prize from The Asian Banker. FPT is also a leading supplier of IT products and solutions to Vietnam’s banking and finance sector, including security solutions such as FPT ATM Guard – an alarm system to detect unusual activity at ATMs.
While banks in developing countries such as Vietnam are prime candidates for cyber fraud attacks because they often lack the technological resources to protect against hackers, tech-savvy Vietnam can be expected to become a leader in IT security solutions to mitigate such risks in the future.
Several banks seek to increase foreign ownership
Several Vietnamese banks are reportedly seeking regulatory approval to increase their foreign ownership levels above the official 30 percent cap, including two of the nation’s top lenders – Vietcombank and Viettinbank. These two banks are reportedly seeking to increase their foreign ownership to about 35 and 40 percent respectively, while Saigon Commercial Bank and An Binh Commercial Bank are reportedly seeking to increase their foreign ownership to around half. While this is a positive development for Vietnam’s banking sector and news of this helped lift several of the country’s publically listed banks on Vietnam’s stock market, foreign investors will remain hesitant until foreign ownership caps surpass 50 percent, which would allow for management control. Otherwise, foreign investors see little incentive in attaining a minority share with limited control of Vietnamese banks that are going through a period of restructuring and recapitalization. Access Asia has recently seen much more foreign investment interest in neighbouring Cambodia’s banking sector, where foreign ownership has no limitations and has ushered in some major deals over the past several months.
Cambodia
Canadian lender acquires 90 percent of Advanced Bank of Asia
The National Bank of Canada (NBC) is set to acquire a 90 percent stake in Cambodian lender Advanced Bank of Asia (ABA), a deal that will mark the first time a North American financial institution has taken a majority share in a Cambodian bank. Sources familiar with the deal say one of the key motivations for the NBC taking this stake is for the bank to gain an entry point into the ASEAN region – and Cambodia’s economic and regulatory environment make it the prime market to access and use as a stepping stone to the region where foreigner ownership laws are typically much more restrictive. Moreover, Cambodia’s finance sector has been growing at impressive rates over the past several years and in comparison to other sectors, finance is one of the more clean and transparent sectors in Cambodia where corruption and nepotism is otherwise rampant.
Microfinance sector attracting notable investment
Cambodia’s microfinance sector is also attracting notable foreign investment interest and deal-making, with a recent development seeing Thailand’s Bank of Ayuthaya acquiring a 100-percent stake of Hattha Kaksekar Limited (HKL), one of largest and most prominent micro-lenders in the Kingdom. The Bank of Ayuthaya, in turn, is 72 percent owned by Japan’s Mitsubishi UFJ Financial Group (MUFG) – and thus this latest deal is also representative of Japan’s growing foreign investment interest in Cambodia to capitalize on the country’s robust economic growth, demographics, ease of doing business, and its dollar-based economy that minimizes currency risk. The HKL deal has been identified as the biggest ever in Cambodia’s finance sector.
Another recent deal saw Maruhan Japan Bank – a Japanese-owned Cambodian bank – acquiring 95.1 percent stake in Sathapana Ltd, the country’s third largest Microfinance Institute. Sathapana was transformed into a commercial bank following the deal with registered capital of US$120 million.
Cambodia’s microfinance sector has been growing at a blistering pace over the past several years and posted a 41 percent year-on-year increase in the size of its loans for the first quarter of 2016. While there are concerns of the sector overheating, a drastic heightening of capital requirements for microfinance institutes set forth by the National Bank of Cambodia (from $62,500 to $1.5 million by 2018) will likely result in a consolidation of the sector, while optimistic banking sources note that growth is remarkable due in part to the low basis line to start with. Access Asia believes Cambodia’s microfinance and commercial banking sector will continue to see robust growth over the near and long term, yet could see some bottlenecks in the medium term as a result of political instability stemming from the next general election set for 2018. Typically there is a significant flight of capital from Cambodian banks in the run-up to national elections and 2018 could see an unprecedented flight due to immense political uncertainty. Access Asia views political instability as Cambodia’s number one security risk and a key factor that will influence investment decisions by foreign investors over the near and medium term.
World Bank resumes loans
After a five-year hiatus, the World Bank is set to resume loans to Cambodia to fund poverty reduction projects, committing US$130 million for four projects involving roads, water, agriculture and health care. In 2011, the bank halted lending to the country to protest the forced eviction of lakeside landowners in Phnom Penh to make room for a luxury development owned by a prominent ruling party Senator. While the resumption of lending has angered many of Cambodia’s flourishing NGO community who believe the bank should remain disengaged until the government addresses the plight of the evictees, the resumption of lending will do more to address the country’s economic and social conditions than remaining disengaged. Yet, to avoid a repeat of the criticism and blow-back that the bank received following the lakeside evictions (at the time, the bank was involved with a $24.3 million land-titling project aimed to avoid such land conflicts as seen with the lakeside case), the bank should implement better monitoring mechanisms and conduct thorough and regular due diligence on its partners and vendors.
Myanmar
US sanctions lifted on three state banks
In a further ease of US sanctions against Myanmar, three state banks have been removed from the blacklist: Myanma Economic Bank, Myanma Foreign Trade Bank, and Myanma Investment and Commercial Bank. The move will improve trade flows and allow Americans greater access to Myanmar’s banking system, a development that will almost certainly have an immediate impact on US investment in the country. The US Treasury Department also extended a sanctions exemption to allow banks to finance shipments through ports and other infrastructure run by sanctioned individuals and entities – particularly Yangon’s Asia World Port run by the black-listed Steven Law. However, the US Treasury Department has also just heightened sanctions against Law with the sanctioning of six more companies associated with him. They are:
Asia Mega Link Co LtdAsia Mega Link Co Ltd
Asia Mega Link Services Co Ltd
Pioneer Aerodrome Services Co Ltd
Green Asia Services Co Ltd
Global World Insurance Co Ltd
Shwe Nar Wah Co Ltd
KBZ to become first local bank to expand beyond Myanmar
Kanbawza Bank (KBZ) has been granted a license by the Bank of Thailand to open a representative office in the Kingdom, becoming the first Myanmar bank to expand beyond the country’s borders. According to media reports, the representative office will need further Thai approval before it can provide banking services, but until then the office will focus on market research, liaising with the private sector and serving as a source of information, including regulatory requirements for doing business in Thailand and Myanmar. To receive the license, KBZ Bank had to undergo an extensive due diligence process, while a similar process is likely underway in Singapore where the bank is also applying to open a representative office in its bid to tap the wider ASEAN market.
KBZ is generally regarded as the most established and professionally run private bank in Myanmar, yet with origins that stem from a very close relationship between its chairman, Aung Ko Win (‘Win’) and the former military government. A key founding shareholder was a daughter of the former Vice-senior general Muang Aye, Nadar Aye, while Win’s business fortunes stemmed from an unusual personal relationship with Muang Aye and represents one of the more interesting tales of financial rise under the former military government. In the early 1990s, Win was a schoolteacher in the conflict-ridden Shan State, which at the time was under the military command of General Muang Aye. While there are varying versions of the story, the one told to Access Asia was that Muang Aye’s daughter was having some trouble at school and so the general hired a private tutor for her, which was Win. Apparently he did such a good job that the general awarded him with lucrative mining licenses for jade and gemstone mining – and his business career took off from there. His empire now includes an airline, a bank, and interests in numerous other sectors including insurance, hospitality, logistics and manufacturing. Despite his past connections to the military regime, Win has now become recognized for his transparency and is noted as one of the country’s highest tax payers (which has become a ‘badge of honor’ in today’s Myanmar.)
KBZ currently operates over 300 branches, 350 ATMs and over 80 currency exchange counters in Myanmar and is widely regarded at the country’s leading private bank.
