Foreign capital was gradually returning to the banking industry after recent successful purchases sales, including the ‘terrible’ deal between the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and its foreign partner, Korean Exchange Bank (KEB Hana Bank), that had just been completed at the end of 2019.
Succeeded in calling for foreign capital
The story of BIDV’s successful sale of strategic capital was remarkable, not only because of its great value but also the affirmation of foreign capital inflows that had returned to Vietnamese banks after the strategic investment movement taking place from 2006 to 2008. Before BIDV, there was another trader, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), selling equity to foreign investors at about $1.3 billion in early 2018. However, Techcombank implemented in the form of ‘retail’ for some investors, different from BIDV’s strategic capital calling nature.
The investment of KEB Hana Bank in BIDV was a very long preparation and negotiation process. However, the deal succeeded thanks to the element of luck, according to a senior leader of BIDV. Because in addition to BIDV’s careful preparation as one of the largest banks, with the most extended history in Vietnam, the attraction of BIDV to foreign partners was also benefited from Vietnamese attractiveness, when the wave of direct and indirect investment into Vietnam was increasing sharply from before 2019.
The strategic selling of capital brought BIDV many things. The first thing was profit from a private placement to the partner KEB Hana Bank with the amount of over 603 million shares, equivalent to 15 percent of BIDV’s charter capital after investment, worth more than 20.295 trillion dong. Besides, BIDV became the Bank with the most abundant chartered capital in the banking system, helping to reduce pressure on the capital increase to ensure capital adequacy ratio. At the same time, thanks to that deal, BIDV had achieved many other purposes in business operations after it had been established.
Also, in 2019, another major bank, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), also completed the issuance of separate shares to the GIC partner of Singapore and Mizuho Bank one of Japan’s largest financial institutions, earning about 6.2 trillion dong (equivalent to about $265 million).
Before Techcombank’s capital sale in early 2018, HCM City Development Joint Stock Commercial Bank (HDBank) was also a name to be mentioned when successfully offering 21 percent of its shares to no less than 10 foreign investors, earning $300 million (over 6.8 trillion dong) before listing.
Promising many new businesses
In addition to the 15 percent stake purchase of BIDV that foreign partner KEB Hana Bank was in the process of completing, with the price of $882 million, the banking sector promised to have several hit deals shortly when the banking industry was at the end of the restructuring. The most interesting case would be the Vietnam Bank for Agriculture and Rural Development (Agribank), the banking giant, which was expected to conduct an initial public offering (IPO) this year, in which the sale of foreign capital was mentioned as an essential item.
As for the private joint-stock banks, entering 2020, before the complicated situation of the Covid-19 epidemic, leading to the wave of capital withdrawal in emerging markets, this area still had positive signals.
The latest move came from Orient Commercial Joint Stock Bank (OCB) when the State Bank of Vietnam (SBV) approved the Bank to increase its chartered capital from 7.899 trillion dong to over 8.767 trillion dong through offering to foreign investors on March 13. Of course, OCB’s plan to sell foreign capital had been in place since 2019 when the policy was approved by shareholders at the 2019 general Meeting of Shareholders. Accordingly, OCB offered nearly 86.9 million shares individually, or 11 percent of charter capital for Aozora Bank of Japan. All proceeds would be added to OCB’s capital for business and investment activities.
Aozora Bank was established in 1957, headquartered in Japan with many branches, representative offices in the US, China, and Singapore. This Bank had total assets of $48 billion (over 1.1quadrillion dong) and was listing shares on the Tokyo Stock Exchange.
OCB stated that the offered share price would not be lower than the book value per share of the Bank at the end of the latest quarter. These shares were restricted to transfer for three years. After issuing to the Japanese Bank, OCB would continue to offer more than 31.6 million shares individually. Previously, OCB’s foreign strategic shareholder, BNP Paribas (France), sold all over 74 million shares, equivalent to 18.68 percent of OCB’s charter capital after 10 years of capital injection. Currently, besides Aozona shareholder, OCB had another foreign shareholder owning 4.98%, which was a fund of Vina Capital.
Some other capital selling plans were also being prepared. However, there was no detailed information, Typically, Military Commercial Joint Stock Bank (MB) raising foreign ownership cap from nearly 21 percent to nearly 23 percent from March 10, 2020, to prepare to attract more foreign capital. The leaders of Saigon Hanoi Commercial Joint Stock Bank (SHB), as well as Sai Gon Joint Stock Commercial Bank (SCB) ‘s leaders, also said they would sell shares to foreign investors to improve their financial capacity. For SHB, in the immediate future, divestment in its subsidiary SHBFC Finance Company (SHB held 100 percent capital) to attract foreign investors.
Similarly, the National Citizen Commercial Joint Stock Bank (NCB) had not yet announced a specific plan. Still, its leaders in August and October 2019 continuously had meetings with foreign investors from Japan and Singapore. Information from the meetings said that foreign investors had expressed their desire to participate in buying shares of NCB in the issuance of new shares to increase charter capital of this Bank this year.
A plan to submit to shareholders of Nam A Commercial Joint Stock Bank (Nam A Bank) also aimed to increase capital to 5 trillion dong this year, including plans to call for foreign capital.
According to financial and banking experts, the attraction of foreign capital into banks was encouraged, which was still under the limit of the government. For the State-owned banks holding dominant shares, the participation of foreign investors in the form of strategic capital purchase reduced the pressure on the short-term capital increase of these banks, and simultaneously opened the door to the international market for banks.
Currently, large state-owned banks were expected to reach regional and global scale soon, with more business presence outside of Vietnam.
For the private banking group, although the foreign ownership threshold was the limit to ensure that Vietnamese investors still held dominant shares, the government was taking revolutionary steps in this regard allowing foreign investors to participate in the structure of weak banks and being able to sell their entire capital at these banks.
Vietnam Construction Bank (CBBank), Ocean Commercial One Member Limited Liability Bank (OceanBank), Global Petro Sole Member Limited Commercial Bank (GPBank) were the names mentioned that foreign investors wanted to participate in the restructuring. Nobiru Adachi, President of J.Trust Bank, said the Bank had studied and carefully calculated the financial indicators of CBBank and sent an offer to buy back to restructure this Bank to SBV. J.Trust believed that CBBank would soon be reformed. Similarly, Han Chang-woo, Chair and Chief Executive Officer (CEO) of Maruhan Group, expressed his desire to receive support and facilitate the prime minister, the government and the Vietnamese authorities in the process of participation in restructuring banking in Vietnam, especially Oceanbank.
Further opening up to foreign investors in the banking sector was now getting more attention by Vietnam Europe Union (EU) Free Trade Agreement (EVFTA). According to EVFTA, credit institutions from the EU had the opportunity to own up to 49 percent of the shares in Vietnamese commercial banks (maximum of two banks, except four large banks with state ownership).
Of course, from regulation to practice, it took more time to evaluate. Le Xuan Nghia, a finance and banking expert, said that after the financial crisis in 2008, the EU had stringent regulations on offshore investment. Therefore, the fact that Vietnamese banks attracted direct investment capital from the EU in the short term was only a potential form but not exciting.
Also, according to Le Xuan Nghia, mergers and acquisitions in general, and mergers and acquisitions in the banking sector in particular were ‘extremely complicated and expensive operations.’ While European banks were less knowledgeable about the Vietnam market, the ‘handshake’ strategic cooperating with Vietnamese banks was unlikely to happen in the future. In the immediate future, domestic banks should pay more attention to foreign capital inflows from Japan and South Korea markets.
