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Banking & Finance

Farming friend

Released at: 17:22, 25/07/2015

Farming friend

LienVietPostBank was unscathed by the problems experienced by other banks some years ago and continues to be a major player in the sector, with a particular focus on agriculture.

by Nguyen Hoai & Minh Tien

More than seven years ago, when it first joined the market, LienVietBank identified its priority business strategy in its so-called “Agricultural Triad” (agriculture, rural areas, and farmers). It was obviously one step ahead in having credit policies towards these sectors. Moving even closer to its target, LienVietBank made a wise move in merging with VNPost (the Vietnam Post Corporation) and LienVietPostBank (the Lien Viet Post Joint Stock Commercial Bank) was established in 2008 with charter capital of VND3.3 trillion (some $150 million at the current exchange rate but much more at the time).

Solid liquidity

According to the bank’s reports its basic financial indicators have maintained very high growth since 2008. Its charter capital increased from the original VND3.3 trillion to VND3.65 trillion ($170 million) in 2009 and 2010, then VND6.01 trillion ($275 million) in 2011 and VND6.46 trillion (nearly $300 million) in 2012 to 2014.

Regarding mobilized capital, one of the basic elements measuring liquidity, LienVietPostBank has created a solid foundation, with VND3.801 trillion ($174 million) in 2008, VND13.399 trillion ($614 million) in 2009, VND30.421 trillion ($1.39 billion) in 2010, VND48.148 trillion ($2.2 billion) in 2011, VND57.628 trillion ($2.64 billion) in 2012, VND71.139 trillion ($3.26 billion) in 2013, and VND91.759 trillion ($4.2 billion) in 2014.

Unlike many other banks, LienVietPostBank doesn’t focus solely on profit indicators but attaches great importance to financial security so it may create a safe cushion in the course of its operations. According to Mr. Nguyen Duc Huong, Vice Chairman of LienVietPostBank, it is among a small number of banks that have not sought refinancing from the SBV for liquidity support since 2008.

Seizing opportunities

2008 to 2010 was a golden period for Vietnam’s banking sector. Many reserved a significant proportion of loans for the stock market and real estate market. The attraction was so substantial that many banks funded the two markets with corporate bonds before authorities blew the whistle to avert the potential risk. LienVietPostBank had not followed such a path, however, and this was one factor in it successfully becoming a major funding institution on the interbank market when liquidity chaos broke out in subsequent years, which led many others to the verge of bankruptcy.

Being consistent with its aims in the “Agricultural Triad”, a sector considered to pose many risks by its competitors, the bank even set aside 40 per cent of its funds for loans to the sector. LienVietPostBank was one of the pioneers in deploying a new strategy of “the left hand gives, the right hand receives” in  providing loans to agricultural enterprises and farmers in the Mekong Delta.

Specifically, the bank lends to enterprises who are centralized agricultural product purchasers for export. They use the funds to finance the supply of seeds, chemicals, and fertilizers to farmers. When the harvest arrives, farmers sell their products to these centralized purchasers, with the earnings for farmers being equal to total revenue minus inputs provided. The difference in this business model is that LienVietPostBank required the enterprises open accounts at the bank. From here, money flows directly to farmers and then flows automatically back to the bank from farmers when the harvest is completed, meaning the bank always has strict control over the money flow and enterprises are prevented from using the loans for other purposes.

The “once in a lifetime” M&A deal with VNPost gave LienVietPostBank access to an extremely large distribution network of more than 10,000 post offices around the country, even in remote rural areas.

The channel not only provided for sizeable capital mobilization but was also safe, as large customers tend to come and go and leave banks in a state of liquidity flux if they withdraw substantial sums, for instance, while the small amounts of capital mobilized on a regular basis from farmers presents no such risk. “From this year onwards, one of the priorities of the bank is to fully exploit postal savings points at post offices to lend and collect from farmers in all parts of the country,” said Mr. Pham Doan Son, CEO of LienVietPostBank. “This is a unique advantage of LienVietPostBank that no other bank has, not even Agribank.”

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