This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 001157 
 
SIPDIS 
 
State for E, EB, EAP/BCLTV, EB/CIP/BA 
State pass to USTR Elena Bryan 
Treasury pass IA/Asia Office Deborah Crane 
USDOC for 6500 and 4430/MAC/AP/OPB/VLC/HPPHO 
 
 
¶E. O. 12958: N/A 
TAGS: ECON EFIN VM FINREF SOE
SUBJECT: ONE PRIVATE BANK IN VIETNAM IS MODERN AND INNOVATIVE 
 
REF:  HCMC 1002 
 
Summary 
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¶1.  Asia Commercial Bank, Vietnam's largest privately-held (joint- 
stock) bank, has managed to build a successful business in a 
sector fraught with potential pitfalls.  The bank is small by 
international standards, but since it was established in 1993 the 
bank has grown to assets of about 737 million USD.  Most 
importantly, the bank is profitable and appears to make loans 
based on genuine principles of credit risk analysis.  In a meeting 
with Ambassador Burghardt, bank management stressed the need for 
Vietnam to continue financial sector reforms, and that foreign 
voices should urge the GVN to continue the reform process. 
Decisions on how to accelerate these reforms would be made at the 
political level - a level where they and even the State Bank of 
Vietnam had only limited influence.  They openly asked for USG 
help to encourage Vietnam to accelerate financial sector reforms. 
ACB management believes that property prices in Ho Chi Minh City 
have reached speculative levels and will drop substantially next 
year.  End Summary 
 
An Innovative Enterprise 
------------------------ 
¶2.  On November 20, 2003, Ambassador Burghardt, accompanied by 
HCMC Econoff, visited Ho Chi Minh City-based Asia Commercial Bank, 
the country's largest and most successful joint-stock bank.  He 
met with Mr. Tran Mong Hung, Chairman, Mr. Pham Van Thiet, 
President, and their management team.  The bank is well-known for 
its innovative and modern banking practices.  Its reputation was 
challenged last month when rumors that Mr. Thiet had fled the 
country triggered a run on the bank (reftel), but the rumor was 
quashed.  About half of the hasty withdrawals have already been 
redeposited with the bank. 
 
¶3.  The Ambassador's meeting began with a brief tour of the bank 
lobby, where the Ambassador could see many of the bank's 
innovations.  The space was clean, well-lit, and orderly.  The 
bank had even installed a "Q-Matic" - probably the only one in 
Vietnam outside our consular section - to minimize waiting.  Life 
insurance counters were set up for two competing firms, gold was 
available for sale, and racks displayed promotional brochures on 
the bank's credit cards, bank-by-phone and online banking 
services.  In addition to traditional bank branches, ACB is also 
setting up kiosk branches and branches in grocery stores.  Through 
all of these initiatives, the bank is positioning itself to appeal 
to a customer base of primarily urban middle class and wealthy 
households. 
 
A Lot Can Happen in 10 Years 
---------------------------- 
¶4.  The Bank was established in 1993 and in ten years has expanded 
to a network of 29 branches throughout Vietnam, with 16 of them in 
Ho Chi Minh City.  It has 11,500 billion VND (about 737 million 
USD) in assets and total deposits of about 9,200 billion VND 
(about 590 million USD).  The bank offers all of the standard 
deposit and loan services (in local and foreign currencies and, of 
course, in gold), as well as credit and debit cards.  It is also 
an agent for Western Union and generates substantial fee income 
from remittance services.  The company has also set up a 
securities company affiliate and a real estate arm.  It has an 
application with the U.S. Federal Reserve to open up a 
representative office in the United States. 
 
¶5.  The bank is privately held.  The members of the bank's board 
of directors and management team control about 50% of the equity. 
Another 25% is held in approximately equal shares by three foreign 
investors:  Jardine Matheson, Dragon Capital, and the World Bank's 
International Finance Corporation (IFC).  Bank management notes 
that the IFC is an active investor and offers substantial training 
and technical assistance to the bank.  The Ambassador noted that 
since the USG funds a major portion of the IFC, it is an indirect 
shareholder of the bank.  Mr. Hung said that a few SOEs also have 
small equity stakes in the bank. 
 
¶6.  According to Chairman Hung, their business is split between 
60% retail and 40% commercial banking.  Nearly all of its 
commercial business targets small and medium-sized businesses in 
the private sector.  Chairman Hung told the Ambassador that ACB 
makes loans only to profitable, commercially viable companies, and 
nearly all loans are secured by collateral.  He also stated that 
the bank does about 5% of its business with a few carefully- 
chosen, profitable state-owned enterprises.  Most of these are 
monopolies that they gauge as good credit risks. 
 
¶7.  When the Ambassador asked how the bank assessed credit risk, 
Chairman Hung acknowledged that it was difficult, but noted that 
the IFC had provided substantial risk assessment training to its 
staff, which was very helpful.  He again stressed that the bank 
only made loans to companies that they evaluated as profitable, 
commercially viable concerns and that virtually all loans were 
secured with collateral.  Credit risk assessment was extremely 
important, Chairman Hung stated, because going after collateral in 
a default situation was extremely difficult.  It usually took 
about three years to successfully foreclose on property, for 
example.  He said that it was easier to dispose of property in 
cities because land use rights, which were an unwelcome complexity 
anywhere in Vietnam, were even more complex in rural areas.  He 
expected that the situation would likely improve in the future 
because the National Assembly was considering a new land law. 
Ambassador Burghardt noted that for the financial sector to 
function properly, banks must be able to foreclose in the case of 
loan default. 
 
Political Actors Decide the Pace of Banking Reforms 
--------------------------------------------- ------ 
¶8.  Ambassador Burghardt asked for ACB's view of Vietnam's 
financial sector reform.  He noted that there was a virtually 
universal view among international donors that reforms were 
proceeding much too slowly.  Chairman Hung replied that the 
decision to accelerate reforms would have to be made at "the 
political level," well above the State Bank of Vietnam.  The SBV 
understands the problem, he said, but their role is limited.  He 
claimed that virtually all of the key decision-makers were aware 
of what needed to be done, but that it was still difficult to do 
it. 
 
¶9.  Reforms must continue, he said, because as Vietnam opens its 
financial sector to foreign players, Vietnamese banks will have 
great difficulty competing.  Ambassador Burghardt asked if state- 
owned banks were "throwing good money after bad" by continuing to 
make new loans to loss-making state-owned enterprises.  While 
hardly endorsing the health and stability of the state banks, Mr. 
Hung noted some positive developments.  The SBV had pressured the 
Ministry of Finance to inject capital into the state-owned banks 
and use their pre-tax profits to increase their loan-loss 
provisions.  He also stated that over the last two or three years 
state-owned banks had begun making 20-30% of their loans to 
private sector businesses.  This diversified their loan 
portfolios, and hopefully these loans were made on a more 
commercially viable basis. 
 
But ACB Ready to Compete 
------------------------ 
¶10.  ACB management acknowledged that competition will continue to 
increase as more foreign banks are allowed to expand their 
business in Vietnam, but Mr. Hung told Ambassador Burghardt that 
ACB is ready.  Working with the IFC the bank has committed to 
training and strengthening its human resources.  The Chairman 
noted that it has worked hard to build its target customer base - 
middle-class to wealthy urban households and small and medium 
enterprises in the private sector - sectors that are likely to 
grow.  The bank has also successfully introduced a variety of 
services.  For example, as of last year it had issued more than 
30,000 credit cards.  With so many bank branches and a well- 
developed customer base, Chairman Hung stated that ACB would be in 
a good position to form alliances with foreign banks that also 
have a focus on retail banking.  It is already doing so with 
Citibank in offering one type of loan product. 
 
Don't Buy Land Until Next Year 
------------------------------ 
¶11.  The bank has a growing mortgage business, particularly in Ho 
Chi Minh City, where it has set up real estate "supermarkets" 
where buyers can review listings and get information about the 
market.   A typical ACB mortgage is extended for only 30-40% of 
the purchase price of a home and carries a maximum term of ten 
years.  Econoff asked if ACB was worried about soaring property 
prices and if we were seeing a property price bubble about to 
burst.  The bankers agreed, stating that property prices had risen 
to speculative levels and were set to tumble.  The market had 
topped out, they said, and they believed that land prices would 
fall by about 50% within the next year (as opposed to housing 
prices, which would presumably fall by a lesser amount.) 
 
¶12.  Mr. Hung claimed that this would not be a major problem for 
the bank, since most ACB  mortgages were for only a small portion 
of the overall purchase price.  Payment terms were set based on 
stable income flows of the borrower, which were unlikely to be 
affected by a drop in property prices.  Even though property 
serves as collateral for non-mortgage loans, Mr. Hung stated that 
ACB credit risk evaluation teams took this speculative pricing 
into consideration when it assessed the viability of commercial 
projects and the long term value of property as collateral.  This, 
he believes, will protect the bank from any dramatic price drops. 
 
Nobody Listens to Me 
-------------------- 
¶13.  At the end of the meeting, the Ambassador asked how bankers 
like ACB participate in or influence discussions on financial 
sector reform.  Mr. Hung noted that it was very difficult to 
influence the discussion which went on at very high levels in the 
GVN.  He said that the decision-makers understood the situation, 
but that seemed to have difficulty taking action.  He stated that 
it was very important for the U.S. and other foreign countries to 
push for these changes.   This, he said, may be the most effective 
way to influence their actions. 
 
Comment 
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¶14.  Chairman Hung and his management team are impressive, and 
have built a bank to serve Vietnam's growing urban middle class. 
In a few short years they have built a sizeable branch network, a 
strong customer base, and attracted foreign investment and 
expertise.  Their innovations should help them compete as Vietnam 
opens up its financial sector over time.  Sadly, these individuals 
downplay their influence with Vietnam's top leadership.  One hopes 
they have understated their influence, because their expertise and 
advice are sorely needed if Vietnam's financial sector reforms are 
eventually to succeed in giving Vietnam the banking system that it 
needs to prosper and develop. 
 
 
 
WHITE