Finance

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Asian banks are either too hot for investors, or too cold. Here's a recipe for serving up one at room temperature.

First, it has to be growing rapidly, but still small. Next, the loan book must be of reasonable quality, yet earning a solid return. Finally, the lender ought to be getting a second look from other investors, but shouldn't be too pricey.

What's left, out of more than 500 big and small lenders in the region, is Bank for Foreign Trade of Vietnam JSC, a.k.a. Vietcombank, which just agreed to sell a 7.7 percent stake to Singapore's sovereign wealth fund for less than $400 million.

How Asian Banks Stack Up
Four mid-sized, fast-growing lenders have loan books of decent quality and high returns. Only one is neither too cheap, nor too expensive
Source: Bloomberg

Expect more such deals.

From investors' perspective, Vietnam's banks are among the most palatable in Asia at present. After a deceleration in growth in 2012 and 2013, the economy is back on its feet, the property market is stable and the banking system, saddled with the highest soured debt in Southeast Asia four years ago, is in reasonable shape. Loan-book growth is once again accelerating. Publicly traded banks' assets are now 25 percent higher than they were five years ago.

Short on Buffer
Loan loss reserves are inadequate for most Vietnamese banks, even as bad loans are under-reported
Source: Bloomberg

It's capital that lenders don't have enough of. Hanoi-based National Citizen Commercial's tangible equity is less than 5 percent of its tangible assets, and current loan-loss reserves are barely enough to cover 40 percent of its nonperforming debt. Add to that a systemic under-reporting of problem loans, and the true capitalization of Vietnamese banks may be even weaker, according to Fitch Ratings. As the central bank pushes lenders to beef up capital in line with international standards, there could be more opportunities for offshore investors.

What gives Vietnam's banks an added luster is the rapid diversification of the country's trade basket. Thanks to Samsung, Vietnam has earned more this year by exporting smartphones and parts than by selling fish and textiles. Electronics exports so far in 2016 are up 11 from the same period last year, and that's after a 36 percent jump in 2015. The economy also promises to become more competitive as the communist party gradually withdraws from state-run businesses. Earlier this week, authorities announced plans to sell their entire stakes in two leading beer companies. Relinquishing complete control of major firms is an unprecedented step.

Back in Business
Vietnamese banks' assets are on the rise again
Source: Bloomberg
Note: Includes data for eight publicly traded lenders.

These are all good omens for Vietnam's banking system. But only so long as things don't heat up too quickly, especially in the property markets of Hanoi and Ho Chi Minh City. That would risk scalding an appetizing investment.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net