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Banking industry: expected M&A deals

Thursday 14, 11 2019
Foreign capital is flowing into the banking industry through M&A deals. In the coming time, it is expected that there will be more M&A deals worth up to trillions of dongs.
Banking industry: expected M&A deals

Banks plan to sell shares to foreign investors

Bank for Investment and Development of Vietnam (BIDV) has recently completed the sale of 603 million shares to KEB Hana Bank. With over VND 20,200 billion earned from this deal, BIDV's chartered capital has increased to VND 40,220 billion, becoming the largest bank in terms of charter capital. This is so far the largest merger and acquisition (M&A) transaction in Vietnam's banking industry to date.

In addition to BIDV, other "giants" including Vietcombank and MBBank are also "offering" their shares to foreign partners. It is said that MBBank has planned to raise about USD 240 million from the sale of 7.5% of its shares to foreign investors through a private placement in late November 2019. MBBank has worked with about 40 foreign investors from Japan, Hong Kong, Singapore and South Korea, and is expected to complete the issuance in November.

Vietcombank is also planning to offer 6.5% of its shares, equivalent to 337.5 million shares, to foreign partners under the capital raising plan approved by the 2019 Annual General Meeting of Shareholders. The deal is expected to take place later this year or early 2020 after the bank completes issuing 1,484 billion bonus shares to existing shareholders.

Agribank also received proposals from NongHyup Financial Group (South Korea). Meanwhile, Srisawad Corporation (Thailand) has asked to acquire ALC I (a financial company) of Agribank and promised to return 100% of ALC I's charter capital to Agribank as well as be responsible for paying off the principal amount that ALC I borrowed from Agribank.

Not only giants but small banks are also looking for foreign partners to strengthen the existing capital scale. At the end of October, National Citizen Commercial Joint Stock Bank (NCB) announced that Japanese and Singaporean investors are expected to buy its shares in the new issuance to become foreign shareholders in the upcoming charter capital increase.

Besides NCB, many domestic banks are also actively seeking foreign strategic partners, especially banks that are undergoing restructuring such as OceanBank, CBBank, and Dong A Bank.
At a meeting with Prime Minister Nguyen Xuan Phuc in late June, Chairman of J.Trust Bank said that he had spent a lot of time studying the situation of CBBank and decided to send an offer to the State Bank of Vietnam about the purchase of this bank for restructuring. J.Trust's rival in this deal is Singapore's Clermont Group as it also wanted to participate in CBBank's restructuring.

In July, Maruhan Group expressed its desire to receive support and facilitate from the Prime Minister and Vietnamese authorities to be a part of the restructuring process of a number of banks, especially OceanBank.

Factors driving foreign capital into the banking industry

After a period of rapid credit growth, while equity growth has slowed down recently, the minimum capital adequacy ratio (CAR) of many banks, especially state-owned commercial banks, is currently quite low, failing to meet the conditions of Basel II benchmark. From 2020, when Basel II standard is widely implemented, CAR of many banks will decrease based on the new formula. If no improvement is made, banks must limit credit growth to keep capital adequacy ratios above the minimum level.

According to JP Morgan, applying Basel II means that CAR ratio of banks can be reduced by 1.5 - 3%. Fitch, a credit rating agency, estimates that to deploy Basel II, the capital of Vietnamese banks needs to increase by USD 4.1 billion, of which 90% belongs to state-owned banks. Therefore, it can be said that raising capital has become an urgent need of most banks. Meanwhile, with limited domestic resources, the best solution now may come from foreign capital flows.

Changes in CAR of Vietnam banking industry

On the other hand, activities to attract foreign capital of banks are currently encouraged by the authorities. According to the Vietnam Banking Industry Development Strategy to 2025, with a vision to 2030, the state plans to reduce its ownership in state commercial banks to 65% and to 51%.

As for banks in the restructuring process, Deputy Prime Minister Vuong Dinh Hue said that the Government advocates not to grant more licenses for establishing 100% foreign-owned banks, but encourages foreign banks to buy banks with poor performance. Many foreign banks have showed interesta in M&A deals. This means that foreign investors can buy controlling shares of Vietnamese banks or even own the banks.

In the M&A market report of Vietnam 2018 - 2019, the MAF and CMAC research groups believed that foreign investors still have many opportunities to participate in Vietnamese banks. Meanwhile, financial companies, or banks' insurers, will also need to find partners to develop to ensure competitiveness in the market. Some Japanese and South Korean investors are making moves to access weak banks, but it takes time to see the results and effectiveness of these deals.
Source: https://vietnambiz.vn/

 

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