The banking sector has been on the recovery path after a tough time struggling with bad debt (2012-2014), especially since 2016. This comeback has been assisted by foreign investors in local banks.
The Bank for Investment and Development of Vietnam (BIDV) has just asked shareholders’ opinion in writing about share offer and charter capital increase through a private placement to the foreign strategic investor, the Republic of Korea’s KEB Hana Bank. The shares for Hana Bank will make up 15% of the charter capital after the offer, equivalent to 17.65% of the current charter capital.
The number of shares planned for the offer is more than 603 million shares with a total per-share value of VND6,033 billion. If the offer is successful, BIDV’s charter capital will increase to VND40,220 billion. The State currently holds 95.28% of BIDV shares and non-State shareholders 4.72%. After the share offer, the State holding will be reduced to 80.99%, KEB Hana Bank will hold 15% shares and other non-State shareholders 4.01%.
Besides BIDV, another State-owned turned joint-stock commercial bank, the Bank for Foreign Trade of Vietnam (Vietcombank), has gained the State Bank of Vietnam’s approval to increase its charter capital of VND35,977 billion by 10% through private placement. Singapore’s sovereign wealth fund GIC and the current foreign shareholder, Japan’s Mizuho Bank, will be the potential buyers for the upcoming share offer.
However, BIDV and Vietcombank are not the first big names expected to attract foreign funds back to the banking sector. Earlier, many joint-stock commercial banks have been quick in catching their foreign partners’ interest. In April, Techcombank offered successfully 164 million shares for a price of up to VND128,000 per share to foreign investors, gaining US$922 million.
Earlier in March, the private equity firm Warburg Pincus agreed to invest more than US$370 million in the bank, marking it the biggest private equity investment in Vietnam by the time. Techcombank’s initial public offering (IPO) also attracted many foreign investors, among them are GIC, Dragon Capital and Fidelity Management.
Last year, as many as 76 foreign investors spent US$300 million buying shares of HD Bank during its IPO in December, equivalent to a 21.5% stake in the bank, making it the second biggest IPO in the banking sector by that time.
Among those investors are many foreign investment funds, banks and big financial institutions investing in Vietnam’ stock market, such as Credit Saison (Japan), Deutsche Bank (Germany), JP Morgan Vietnam Opportunities Fund, CAM Bank (Japan), RWC Frontier Markets Opportunity Master Fund (the UK), Macquarie Bank (Australia), Charlemagne (the UK), Dragon Capital (the UK) and VinaCapital.
Opportunities for both sides
The increase of the charter capital of State-owned turned joint-stock commercial banks, including BIDV, Vietcombank, VietinBank and Agribank, to improve their financial indexes, and thereby increasing their credits, has been mentioned since 2016 when the application of the Basel II standards was planned to begin. The application was later rescheduled to 2020.
During this time, proposals to increase charter capital are facing more difficulties, as the National Assembly’s resolution on medium-term budget spending in 2018 has no allocation for the increase of charter capital of State-owned turned joint-stock commercial banks.
Though BIDV, Vietcombank and VietinBank have many times proposed the Government allow them to increase the charter capital through distribution of dividends in shares to retain funds for business operations as well as for meeting the Basel II standards, their proposals have been rejected. The failure to increase capital has more or less affected the business operations of BIDV and VietinBank. Their pre-tax profits, which have been in the top three over the past several years, have for the first time overtaken by Techcombank in the first nine months of this year.
BIDV is nearly firm with the selection of the new strategic partner. The time limit for share transfer is five years. KEB Hana Bank is a big bank in the Republic of Korea; so it is expected to go long-term and support BIDV’s banking operations. With the State Bank’s approval for capital increase, Vietcombank negotiations with GIC and Mizuho Bank may get more favorable. Meanwhile, VietinBank is in a difficult situation. The State holding in the bank is currently at 65%, so there is not much room for the State to consider further reduction.
For foreign investors, Vietnam’s banking sector still maintains big room for growth in view of the proportion of the population with no access to financial services. State-owned turned joint-stock commercial banks prove attractive to strategic investors from Japan and South Korea, while privately owned joint-stock commercial banks seem to capture more interest from financial investors, especially big investment funds from Europe and America.