There are significant numbers of foreign corporations that have asked the Vietnamese government to allow them to buy finance and leasing companies.
Recently, Srisawad Corporation of Thailand has sent an official dispatch to the government with the desire to buy 100 percent of Vietnam Bank for Agriculture and Rural Development (Agribank)’s capital in ALCI financial leasing company. The company stated that it was ready to pay Agribank full initial charter capital and the entire amount of principal owed by ALCI from Agribank during the period of operation (totalling about 523 billion dong) and to inherit all ALCI’s current debt.
It is worth noting that ALCI is suffering from losses and heavily negative equity. By the end of 2017, ALC I had chartered capital of 200 billion dong and leasing outstanding of more than 586 billion dong. The company’s pre-tax profit in 2017 was over 19 billion dong but the accumulated loss was 714 billion dong and the negative equity was 437 billion dong.
In a meeting with deputy prime minister Vuong Dinh Hue a few days ago, Chair of Aeon Financial Services Company (Japan) expressed his desire to expand operations to financial investment in Vietnam through acquisition of foreign financial companies or financial companies with State shares.
In the current system of Vietnamese credit institutions, data from the State Bank of Vietnam (SBV) shows that the group of financial companies is leading in profitability. At the end of third quarter of 2018 (latest data), Return on Assets (ROA) and Return of Equity (ROE) ratios of financial and leasing companies are 3.02 percent and 13.83 percent respectively, much higher than banks..
The well-operated companies are normally attractive for investors, but even companies that suffer from heavy losses are still “peeked” by investors, which is difficult to explain.
We brought this issue to exchange with Can Van Luc, an expert in finance and banking sector, and he pointed out three main reasons.
Firstly, the potential of consumer financing development in Vietnam is still relatively large. According to recently released data, Vietnam’s total consumer credit amount accounts for about 18 percent of total outstanding loans of the economy. If separating credit related to housing, consumer credit is only equivalent to about 12 percent of the total outstanding loans of the economy. Meanwhile, this rate is 21 percent in China and 34 percent in Asean. Obviously, this area has a lot of potential to develop in the future.
Secondly, the current buying price, according to Luc, is quite appropriate and relatively attractive because the current Price to Earnings ratio (P/E) in Vietnam has been adjusted about 13-14 times.
The third is that the investment in acquiring these financial companies is not too big, in accordance with the strategy, the nature of market exploration and market penetration of foreign organisations.
Luc also said that in the case of a financial leasing company of Agribank, despite being at a loss, it was still interested by foreign investors because the buying price was not too high and relatively affordable. “Investors must have studied the opportunity very well and found the potential to grow there,” he continued.
In fact, the trend to penetrate into Vietnam market through the acquisition of financial companies has taken place for the last three years. In early January 2019, Shinhan Card was officially approved by SBV to buy all Prudential finance companies in Vietnam. It spent about $151 million (equivalent to 3,400 billion dong) for the deal. The company’s CEO said that Shinhan Card always considered Vietnam as a key foreign market for investment and would focus on the potential consumer finance sector.
At the end of last year (2018), Lotte also completed the final legal procedure in the acquisition of Techcom Finance with the value of up to 1,700 billion dong. In September 2017, Shinsei Bank (Japan) also acquired 49 percent capital of MB Shinsei Finance Company from Military Joint Stock Commercial Bank (MB).
The most popular way when foreign corporations enter the Vietnamese financial market is to buy financial companies instead of establishing new ones. Can Van Luc explained that establishing a completely new financial company in Vietnam would cope with many legal and procedural difficulties. Moreover, the price to buy financial companies according to his observation last time was quite appropriate. Therefore, instead of paying a huge amount and spending a lot of time to establish a new company, buying financial companies has more advantages. Moreover, the Vietnam government also welcomes the participation of foreign investors.
The landing of foreign investors is expected to bring fierce competition in consumer finance in the coming years. This playground is currently occupied by domestic finance companies, with the leading names being FE Credit, HD Saison, etc.
However, as retailers with large commercial centres, Lotte or Aeon have many advantages to compete in the niche market when building a separate finance company specialising in consumer lending to complete the value chain. Observers also expect that big domestic retailers such as Vinmart, Mobile World, etc. will also take similar steps, and then, consumer finance market will be increasingly completed. Hence, consumers will benefit the most.
