Banks readjusting focus with subsidiary divestments

Banks readjusting focus with subsidiary divestments, Illustration photo

State-owned bank VietinBank last month signalled its interest to divest from a handful of subsidiaries.

Particularly, the bank targets to divest 15 per cent in VietinBank Securities, reducing its ownership from 75.6 to just over 50 per cent.

Vietinbank Securities has witnessed exceptional growth in its performance in the first half of 2021 thanks to the huge appetite of new retail traders. The brokerage recorded a revenue of more than VND413 billion ($17.96 million), up 76 per cent on-year. After-tax profit reached VND167 billion ($7.26 million), equivalent to a 17-fold increase on-year. The company is among the seven most experienced brokerages in Vietnam.

Simultaneously, VietinBank is also lowering its capital in VietinBank Capital to VND300 billion ($13 million). It is waiting for approval from the State Bank of Vietnam (SBV) to divest 50 per cent of its capital in VietinBank Leasing by December.

Last year, Japan’s Mitsubishi UFJ Lease & Finance Co., Ltd. acquired a 49 per cent equity interest in VietinBank Leasing. The deal size, however, was not disclosed publicly and the transaction could not be completed as competent authorities require more time to grant approval.

“VietinBank and VietinBank Leasing will continue to coordinate with the transferees to accelerate the approval of the competent authority for the legal transformation of VietinBank Leasing,” VietinBank said in a public statement.

KB Securities noted, “In our assessment, proceeds from expected deals would not have a significant impact on VietinBank’s operation. However, after successful divestment, VietinBank could boost the efficiency of its core business in banking services and diversify its techable portfolios.”

Last month, SHB confirmed that it would temporarily lock its foreign ownership limit ratio at 10 per cent from its previous 20 per cent, and is now negotiating with several foreign investors.

The bank also entered a strategic agreement to sell its consumer finance arm, SHB Finance, to Ayudhya Bank (Krungsri) of Thailand – a member of Mitsubishi UFJ Financial Group from Japan in a $156 million deal. Accordingly, SHB would transfer 50 per cent of SHB Finance’s charter capital to Krungsri and the remaining ownership would be transferred to the Thai bank after three years.

MUFG, the largest shareholder of Krungsri (holding nearly 77 per cent stake), is also the largest strategic foreign investor of VietinBank with approximately 20 per cent ownership in the bank.

Elsewhere, MSB last week announced its public auction of its contributed capital shares at its asset management and exploitation arm MSB AMC. According to the bank’s semi-annual financial report, MSB is contributing VND100 billion ($4.34 million) of capital to AMC. This divestment would help MSB to restructure its portfolio and refocus its priority on the bank’s strengths.

In early 2020, MSB successfully negotiated the transfer of 50 per cent of its FCCOM to Hyundai Card – the credit card company of South Korean automaker Hyundai. However, due to the impact of the pandemic and a change in partner strategy, the $42 million deal has turned sour.

“Currently, there are a few potential partners working with MSB on the FCCOM divestment, and the deal is expected to be completed in 2022,” said Nguyen Hoang Linh, CEO of MSB. “Moreover, we are mulling over a few options regarding foreign partnership, such as reserving a part of the bank’s capital for foreign investors. In the short run, international strategic partners will transfer international know-how and help MSB to diversify funding sources.”

Vo The Vinh, head of Research and Investment Strategy at Guotai Junan Securities Vietnam, said, “We expect MSB to complete the process of selecting a new partner soon and close this deal by the end of 2021 or early 2022. With the average price-to-book ratio of recent deals, we expect MSB to make at least VND500 billion ($21.7 million) in profit from the sale of FCCOM, thereby adding resources to the bank’s business.”

In late July, Sacombank also confirmed its intention to offload entire capital from brokerage arm Sacombank Securities JSC. The move is in line with the bank’s comprehensive restructuring strategy, including divestment from ineffective businesses. The bank could bag VND150-170 billion ($6.5-7.4 million) if the deal is successfully executed.