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BANKING & FINANCE

Open to offers

Vietnamese banks are in need of capital raising in order to ensure they
meet operational criteria and resolve the difficulties from the pandemic.

T KHANH CHI reportS

he mounting pressure from the Covid- LienVietPost Bank also increased its foreign ratio], while banks with an ROE of 15 per
19 pandemic has placed a strain on ownership from 5.5 per cent to nearly 10 per cent plus can command 2.0x P/B multiples.
T Vietnamese banks over the last year, cent along with the announcement of a share In Vietnam, many banks with such returns
especially their demand for capital raising to listing on the Ho Chi Minh Stock Exchange are trading at around 1.0x P/B, or even below
ensure safe and effective operational criteria (HoSE). HDBank, meanwhile, decided to book value.”
amid a fear of rising bad debts in the future. bring down its FOL to 21.5 per cent from 30 Regarding the need for more capital, most
In that context, many commercial banks in per cent in order to attract potential buyers, banks in Vietnam have met the minimum
the country have been identifying plans to and VPBank also cut its FOL by 7.77 per cent regulatory requirements under Basel II. “How-
welcome foreign capital flows. Monetary to 15 per cent. ever, as we have seen globally, capital require-
resources from overseas would not only help A highlight of Vietnam’s banking M&A ments will only get tougher with higher min-
Vietnamese banks satisfy their capital “thirst” landscape last year was the long-negotiated imum requirements as well as greater scrutiny
but also create expectations over an exciting deal between Japanese bank Aozora and the on the form of capital, which can be seen
return of foreign investment waves into Viet- Orient Commercial Joint Stock Bank (OCB). with the adoption of Basel III around the
nam’s banking sector via mergers and acqui- The domestic commercial bank announced world,” he said. “FOLs can be a challenge for
sitions (M&As). in June it had successfully sold 15 per cent, many Vietnamese banks to raise the necessary
equivalent to over 131.5 million shares and capital to meet those tougher standards.”
Pressing need worth some $160 million, to its Japanese
Vietnamese banks, especially those with partner. The bank’s latest report said foreign Major pressure
small capitalization, are targeting more foreign shareholders currently hold a 19.5 per cent A report from the Vietnam Investment
capital to improve their performance, but stake, with the strategic shareholder Aozora Securities Company (VIS) noted that a number
global markets have been hit hard by Covid- Bank holding 15 per cent. of banks will expand their FOLs under Vietnam’s
19, derailing such plans, especially for those OCB has met a few potential investors commitments in the EU-Vietnam Free Trade
that haven’t reported high profits over previous with an appropriate investment viewpoint. Agreement (EUVFTA). Moreover, the Viet-
years, forcing them to adopt different “We are not only looking for investors but namese Government will also allow European
approaches to their foreign ownership limit also partners to work with us in many aspects,” financial companies to acquire 49 per cent of
(FOL). Thus, some banks have locked in their Mr. Nguyen Dinh Tung, CEO of OCB, told two commercial banks, up from the current
foreign ownership ratios to wait for oppor- VET. “For example, Aozora has started many limit of 30 per cent; an offer that is valid for
tunities and keep their shares away from any attractive programs for us and is also coop- five years after the EUVFTA takes effect.
market volatility, while some have raised their erating with us in M&A services and in It is expected that local authorities will
FOL in order to pave the way for overseas approaching Japanese small and medium- relax the FOL at Vietnamese commercial
investors and enhance their financial strength. sized enterprises (SMEs). We have the same banks within the next six quarters at the
To meet the capital adequacy ratio (CAR) view regarding approaching other investors, latest, according to Ms. Ngo Thi Thanh Truc,
under the Basel II standards, as required by and plan to sell 10 per cent of capital to Analyst at the Viet Capital Securities Company
the State Bank of Vietnam (SBV), many State- foreign investors and not limit the number (VCSC). This is because of Resolution No
owned and private commercial joint stock of investors. There have been many investors 161/NQ-CP, issued by the Government in
banks approved plans to increase capital last interested in buying our shares and we have October last year, which directs the strength-
year. Some Vietnamese banks have completed prepared a shortlist.” ening and enhancing of the operational effi-
selling stakes to foreign buyers but many still Vietnamese lenders are taking a cautious ciency of State-owned companies, and says
have room to welcome overseas investors. approach to FOLs. “FOLs prevent banks from that the State is required to own the controlling
The Military Commercial Joint Stock Bank reaching their full valuation potential,” said stake at State-owned banks.
(MBBank) last November increased its FOL Mr. Andy Ho, CIO of VinaCapital. “In markets “Resolution No 161 has created a frame-
slightly, from 22.9 per cent to 23 per cent. where there are no such restrictions, banks work for the Government to lower the State
The move was announced after the bank tend to trade at a fair price based on their ownership requirement at State-owned banks
issued nearly 362 million shares to pay divi- potential profit, growth, and return. Typically, from 65 per cent to just over 50 per cent,”
dends for 2019 and increase its charter capital banks that generate an ROE of 20 per cent she said. “On the basis of the Resolution, the
to around $1.2 billion. In a similar move, plus can trade up to 3.0x P/B [price-to-book Ministry of Planning and Investment (MPI)

40 | VIETNAM ECONOMIC TIMES | FEBRUARY 2021