In early 2019, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) issued separate shares to GIC a partner from Singapore and Mizuho Bank one of Japan’s biggest financial institutions, earning about 6.2 trillion dong (equivalent to about 265 million dollars). Meanwhile, MUFG the strategic shareholder of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) also said to be willing to support the bank’s charter capital raising to facilitate business. Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) also announced to issue more than 603 million shares to KEB Hana Bank, grossing more than 20.3 trillion dong.
Not only state-owned banks, many private joint stock banks are also planning to sell stake to foreign investors.
For example, Vietnam Prosperity Commercial Joint Stock Bank (VPBank), at its 2019 annual general meeting (AGM) approved the plan to increase charter capital from 25.3 trillion to 28.210 trillion dong through the issuance of 31 million shares to employees and a private placement of 26 million shares. However, the volume of the private placement will be specifically calculated at the time of the issuance to increase the bank’s ratio of foreign ownership on charter capital to the maximum 30 percent (currently 22.532 percent).
Military Commercial Joint Stock Bank (MB) also expects to sell 7.5 percent of stake to foreign investors. Nam A Commercial Joint Stock Bank (NamABank) also aims to raise charter capital to five trillion dong this year, in which the issuance of shares to foreign investors is also taken into account.
Previously, HCM City Development Commercial Joint Stock Bank (HDBank) also sold more than 21 percent of shares to foreign investors and collected 300 million US dollars before its listing in early 2018. Vietnam Technological and Commercial Joint Stock Bank (Techcombank) sold shares to Warburg Pincus and earn 370 million US dollars before listing shares on the HCM City Stock Exchange (HoSE) in 2018.
The above cases partly show that Vietnamese banks are drawing certain attention of foreign investors. The positive trend of Vietnam’s socio-economic situation in the first eight months of 2019, the stable growth of industries, the improving business investment environment, the increasing national competiveness, and the flexible and active monetary policy management of the State Bank of Vietnam (SBV) and relevant agencies as well as the positive business results have helped Vietnam more affirm its position in the world financial market.
US News & World Report has recently released a ranking of the best economics to invest in 2019. In particular, Vietnam has surpassed its Southeast Asian neighbours including Malaysia, Indonesia and Singapore to rank the 8th position from the 23rd position in the last year.
In fact, the capital of business in general and of banks in particular comes from the diversity of shareholders’ contributions. The capital source will form assets for banks in the future. According to a financial expert, when pouring capital in to a bank, foreign investors always eager to maximise the value of their shares which they will get later.
“Investors will only pour capital when they see the prospect of a bank in its business strategy, see the profitability of the business activities, and the ability to maximise the value of the shares in the future”.
Dr Chau Dinh Linh from HCM City Banking University also said that for banks, attracting foreign capital will give them more opportunities to form more assets, make more profitable business strategies in the future, particularly that can help banks meet the requirement of capital raising under the SBV’s roadmap and improve the capital adequacy ratio (CAR), etc.
Not only that, according to Dr Linh, banks can also take advantage of the management process of foreign investors, experiences of exploiting business strategies (especially retail banking strategy), technology, etc. of investors. The abundant capital also contributes to stabilising the system, helping banks balance their capital and reduce dependence on the small-scaled capital mobilisation market. From the macro view, if more foreign capital is injected, the stock market will be more open, boosting Vietnam’s stock indices.
Discussing the prospect of attracting foreign investment into the field of finance and banking of Vietnam in the near future, experts agreed that it is difficult to make an accurate forecast. It is undeniable that there are many supportive and motivating factors for attracting foreign investments in Vietnam’s banking system but the decisive factor, according to experts, comes from banks’ intrinsic value.
Having a fairly cautious view, Dr Nguyen Tri Hieu believed that there are many challenges for the Vietnam’s banking system which require banks to make more efforts to upgrade themselves and approach the international practices. Banks will soon have to apply the CAR under Basel II standards.
In addition, Dr Hieu also said that the banking system needs strong reforms from administration to lending, financial capacity, product investment, technology, etc. to not only affirm the position in the domestic market but also to reach the regional and global market.
The system reform will purify commercial banks. Banks with weak health will have to make restructuring or mergers and acquisitions (M&A) plans, including inviting foreign investors to participate in the restructuring. Considering the objective factor, Vietnam’s credit rating also needs more improvement because it has a great influence on attracting investors to the Vietnam’s banking sector.
Sharing similar view, Dr Linh also found that the bank’s ability to draw foreign capital heavily depends on the health of each bank, its capital structure, assets and profitability set in the long-term business strategy. Banks must have a clear step-by-step strategy to achieve their final goals. It is very difficult for an investor to make investment in the bank with unclear assets, not transparent information, low CAR and particularly no specific business strategy.
That is why state-owned banks often draw more attention of foreign investors due to their great influence to the banking system. In the long term, it is necessary to consider expanding foreign ownership room to attract more foreign investment.
An economic expert additionally shared that the advances of the digital revolution in the 4.0 Industrial Revolution will create favourable conditions for Vietnamese banks to attract investment, taking advantage of being a follower to receive support, technical advice, training and fostering new knowledge from foreign banks and partners, strategic investors in the application of modern business and management framework, acquiring the smart digital banking model and develop new products with high technology content.
“If Vietnam’s financial and banking industry makes good use of the opportunities provided by the Industry 4.0, banks will have access to modern technologies, enhance service quality and be able to close the gap in technology and knowledge with the world,” said the expert.
