Banks to leverage EVFTA adjustments

HDBank has been working with German group DEG since 2020

Several local institutions are assertively attempting to bolster their overseas space to be more competitive on an elite scale. But Viet Capital Securities (VCSC) expressed concerns that the foreign ownership limit (FOL) legislation would make it impossible for all Vietnamese banks to expand their foreign space.

Sacombank and HDBank, however, might be the exception, as they are being rumoured to be among potential lenders to partner with international financial institutions rooted in Europe.

The Vietnam Banking Association estimated that international financiers now own a 27–28 per cent stake in privately-held commercial banks. Although the maximum FOL for Vietnamese banks stayed unchanged in 2021, VCSC anticipated that the government’s Resolution No.161/NQ-CP issued in October 2020 on directing the consolidation and improvement of the performance of state-owned enterprises (SOEs), would pave the way for the government to lower the minimum state ownership in state-owned commercial banks (SOCBs) from 65 to around 50 per cent. Furthermore, the Ministry of Planning and Investment drafted a new document in late 2021 to replace Decision No.58/2016/QD-TTg enacted in 2016 on the classification of SOEs. Banks (not insurance companies, securities companies, fund management firms, or financial leasing firms) shall be categorised into a group controlled by the state, with state ownership ranging from 50-65 per cent.

Thus, SOCBs, particularly VietinBank, which is the only one whose state ownership percentage is now close to the 65 per cent limit, would reap the benefits due to the vast potential of international deep-pocketed financiers. However, in February 2021, Decision No.22/NQ-CP superseded Decision 58, which mandated that at least 65 per cent of the voting shares in SOCBs must be held by the state, effective to 2025. Thus, VCSC does not anticipate any significant growth in FOL available for them in the near term.

“Notwithstanding, it is conceivable to increase FOL in a small number of private joint-stock commercial banks. Within five years of the EU-Vietnam Free Trade Agreement’s (EVFTA) implementation date, Vietnam has pledged to allow two European credit institutions to control up to 49 per cent of the charter capital of two Vietnamese banks. This deal, however, would exclude BIDV, VietinBank, Vietcombank, and Agribank,” VCSC stated.

For this EVFTA manifesto, VCSC perceives that Sacombank is the most sensible candidate, given that 32.5 per cent of the bank’s outstanding shares are now held as collateral for an unpaid obligation that has been settled with the Vietnam Asset Management Company (VAMC).

“The sale of 32.5 per cent in a single transaction will maximise value for VAMC. And because this number of shares exceeds the FOL threshold of 30 per cent (which is currently applicable to commercial banks), the sale would have to be made under a special exemption such as the EVFTA in order to be completed,” VCSC added.

Upon completion of the reorganisation in 2022, according to Sacombank chairman Duong Cong Minh, the bank expects to sell 32.5 per cent of its ownership to two international partners, who will be named later. Minh also stated Sacombank is currently filing for a mechanism that would allow it to purchase back special bonds in 2022, which are still under VAMC’s administration, and re-offer them for sale at an auction.

HDBank is also one of the few lenders that is being examined to extend the FOL to 49 per cent in accordance with the EVFTA pledge, stated Mirae Asset Securities. If the adjustment is made, the bank’s stock could attract long-term investors.

In late January, the International Finance Corporation (IFC), LeapFrog Investments, and DEG invested $165 million in convertible Tier 2 bonds issued by HDBank. IFC and its asset management company, as well as LeapFrog Investments and DEG, have subscribed $95 million, $60 million, and $10 million respectively to US dollar-denominated five-year-plus-one-day convertible Tier 2 bonds. The investors will have the option to convert the bonds into common shares of HDBank over the mutually agreed period.

Jochen Steinbuch, DEG’s regional manager for Greater Mekong, said that DEG had already entered into strong cooperation with HDBank with its first investment in 2020.

“DEG is leveraging its German and European business network by setting up a German Desk at HDBank and is committing its business support services in the areas of environmental and social governance, as well as digitalisation. We are proud to be part of the bank’s successful development and look forward to accompanying and supporting HDBank further,” he noted.”