Banks bolster financial strength via M&As and capital hikes

In early February, the Board of Directors of Vietnam National Petroleum Group (Petrolimex) gave the nod for the stake transfer plan at PG Bank, as Petrolimex intends to divest its stake through a public auction on the Ho Chi Minh Stock Exchange.

The starting price will be chosen by whichever is the highest between the price determined by the organisation at VND21,300 (90 US cents) per share or the average reference price of one share over 30 consecutive trading sessions on the unlisted public company market before the date of approval for the capital transfer plan.

Petrolimex's divestment gives PG Bank the opportunity to find strategic shareholders with the potential for capital increases after 12 years of standing still. Currently, PG Bank has the lowest charter capital and total assets of any bank in Vietnam.

In mid-January, Eximbank's shares had a tumultuous trading session with a put-through trading volume touching 134 million shares, and a total value close to $148.7 million. This was the session marking Sumitomo Mitsui's (SMBC) completion of divestment from Eximbank for transfer to domestic investors.

After SMBC's divestment from Eximbank, all eyes turned to VPBank.

VPBank had planned to complete the sale of 15 per cent of their capital to a foreign strategic partner last year, but the deal seems to have slowed amid the complicated global economic situation.

Talking to investors recently, Luu Thi Thao, deputy general director of VPBank said, "The process of working with partners is still going well, but the roadmap to sell 15 per cent stake to strategic investors abroad has been slower than expected."

After VPBank sold off a 49 per cent stake in FE Credit, its consumer finance division, to SMBC last year, the institution has become the financial house with the largest charter capital in Vietnam.

While M&As seem to be the shortest path to increasing capital for many banks, there are not many opportunities currently, which also explains why several big banks have chosen to accept weak bank transfers.

Vietcombank, HD Bank, and MB have all been approved by their shareholders to accept weak bank transfers. Management at the banks have asserted that the move will lead to many opportunities for asset and network expansion, and will also bolster credit strength.

At a conference in December, leaders of four state-owned commercial banks urgently proposed for charter capital increases. Vietnamese lenders have actively appealed to their capital sources to boost financial capacity, yet the capital buffer of Vietnamese banks remains thin when compared to other markets in the region.

In addition, while banks in nearby markets have been implementing Basel III standards, at least in part, those in Vietnam have only implemented Basel II. Currently, there are 20 commercial banks in Vietnam that apply Basel II standards, of which 16 have announced the completion of all three pillars. Some banks have started to apply advanced standards and are preparing to apply Basel III standards.

Raising charter capital in the forthcoming time is deemed necessary to help banks develop and expand business operations and increase their resilience in a volatile economy.

Free trade upgrade to bolster reach of ASEAN connections Vietnam is set to have opportunities to expand its trade and investment ties with Australia and New Zealand on the back of a new version of a multilateral free trade agreement between ASEAN and these two economies.

Deposit rate hikes still lingering Banks continue to increase their deposit rates to relieve liquidity constraints at year-end.

State-owned banks seek capital injection Against the backdrop of a pressing need for business development, four state-owned banks are soliciting a government mechanism to accelerate a capital boost that would involve the state budget and lift the foreign ownership ratio.