Foreign investors strengthen bank M&A in Vietnam

The VND4,300 billion deal in which SeABank sold AEON Financial Service 100% of its capital participation at PTF Finance Company captivated the financial market recently.

SHB is set to offer 20% of its equity to a strategic partner, following a trend of large capital sales in the first half of 2024, following the sale of 49% of affiliated financial companies by MB and HDBank to Shinsei Bank and Saison Group of Japan.

In addition to financial transactions, several banks are looking for more international investors. For example, after changing its name, Lien Viet Post Bank (LPBank) intends to issue 300 million shares for private sale to international investors this year. Vietcombank intends to privately offer 6.5% to international financial investors, with a total of 307.6 million shares issued in 2023-2024.

Vietnam is attracting foreign capital flows to its frontier and developing markets, with the country restructuring weak banks and allowing foreign investors to participate. Mandatory transfer deals by OceanBank, CB, DongABank, and GPBank, as well as divestment deals by Petrolimex at PG Bank and VNPost at Lien Viet Post Bank, are examples of this trend. Currently, only a few banks with low foreign ownership rates are in the market.

Mergers and acquisitions will assist banks in increasing capital, improving capital adequacy ratios (CAR), preparing for growth, and dealing with financial market volatility and high bad debt. These are activities that are becoming increasingly urgent as banks must quickly strengthen their buffers against economic difficulties at present as well as in the coming years.

The amount of charter capital of banks expected to increase this year is VND163,000 billion, breaking the record of VND154,000 billion in 2022. However, according to Dr. Can Van Luc, Chief Economist of BIDV Bank, the safety factor One of the major challenges is that the CAR of Vietnamese banks is improving slowly and at a low level when compared to the rest of the region. While countries in the region have applied Basel III or part of Basel III, Vietnamese commercial banks are only in the phase of implementing Basel II.

Photos at DongA Bank. Photo: Quy Hoa.

Vietnam has 37 commercial banks, and the government wants to encourage mergers and acquisitions to build larger and stronger banks capable of competing with global banks. The EVFTA Agreement commits Vietnam to consider allowing two European credit institutions to own up to 49% of the charter capital of two Vietnamese banks.

According to Sam Yoshida, Global Director of Transnational M&A Services at RECOF Corp, large financial institutions in developed economies such as Japan, South Korea, and Singapore are pursuing cross-border M&A activities for long-term growth.

"After receiving the license, we intend to issue credit cards in addition to personal loans," said Mr. Kenji Fujita, President and General Director of AEON Financial Service. AEON Financial Service is targeting the booming consumer lending segment in Vietnam, with an average growth rate of about 20% per year.

Foreign banks, in fact, are following in the footsteps of increasingly large FDI investments in the Vietnamese market in order to capitalize on opportunities in a high-growth economy with a growing middle class.

Mr. Andy Ho, General Director of VinaCapital Group, stated that fields such as banking, consumption, and real estate are very appealing to investors. These three sectors are considered the economy's pillars, are in the recovery phase, and are all appealing because they are in the early stages of the development cycle, as evidenced by the relatively low penetration rate of products and services.

For example, while the penetration rate of retail banking products remains quite low, consumers benefit from rising incomes and the ever-present demand for home ownership. The above factors show that these industries will continue to maintain high revenue and profit growth prospects in both the short and long term. "When the economy returns to its golden age, that will be the time for the banking industry to lead the wave," said Ms. Nguyen Thi Phuong Lam, Director of Analysis of Rong Viet Securities Company (VDS).

The State Bank has sent a report to the government about allowing foreign investors to own more shares in transfer-receiving credit institutions. This means that selling capital to foreign shareholders is now easier. Compulsory delivery from 30% to 49%.

Mr. Nguyen Quoc Hung, General Secretary of the Vietnam Banking Association, said: "Foreign investors investing capital in Vietnamese banks is good for domestic banks. The participation of foreign investors has brought positive changes in finance, technology, management and operations at credit institutions towards closer approaches to international practices and standards. ”