FOL hikes and merger plans on the cards

Vietnamese financial institutions are under pressure to raise funds, Le Toan

MSB is likely to sell some or all of its stake in Finance Co., Ltd. this year. The pandemic has had a significant impact on Vietnam’s consumer loan sector, which has hampered MSB’s divestiture efforts so far.

Likewise, Hana Financial Group has established an alliance with BIDV, through the subscription of 15 per cent of its shares by KEB Hana Bank in 2019, followed by a subscription of 35 per cent of BIDV Securities JSC by Hana Financial Investment Co., Ltd. in April this year.

Warrick Cleine, chairman and CEO of KPMG in Vietnam and Cambodia, said, “Investors have shifted their attention to developing sectors like consumer discretionary and energy-utilities, so merger and acquisition (M&A) transactions in banking and financial sector, which were active in 2021, slowed down dramatically in the first 10 months of 2022. However, potential mega deals in banking and finance may change the landscape if they are concluded in 2023.”

He added that many foreign investors are interested in the banking and financial field as they have a certain confidence in the Vietnamese market and businesses. Many CEOs are also seeing M&A deals as an important way for them to change their business models effectively.

Meanwhile, the State Bank of Vietnam (SBV) is drafting a fresh decree amending a 2014 version on foreign investors’ share purchase from Vietnamese credit institutions.

Specifically, as a preferential mechanism, the SBV is mulling over lifting the foreign ownership limit (FOL) ratio for banks that have engaged in the reorganisation of weak banks. This ratio may be greater than the maximum FOL of 30 per cent, but will not exceed 49 per cent of the bank’s charter capital.

There are currently four weak banks subject to the credit institution restructuring programme: DongABank, CB, Oceanbank, and GPBank. So far, Vietcombank, MB, HDBank, and VPBank have announced their intention or plan to implement the compulsory transfer.

According to Yuanta Vietnam, Vietnamese financial institutions are highly leveraged and under intense pressure to raise funds. The long-term health of the banking sector and economy depends on increased bank capital. “If possible, this will only be temporary. However, capital buffer will be much improved if the SBV even contemplates relaxing the rules over 30 per cent,” the brokerage said.

For VPBank, Yuanta Vietnam predicts that the capital sale plan will be finalised in the first half of 2023, with VPBank selling shares to foreign investors. VPBank also increased the maximum FOL from 15 to 17.6 per cent of charter capital last year. SMBC is rumoured to be the potential suitor after its deal to acquire 49 per cent stake of FE Credit.

In addition, Vietcombank had intended to sell 6.5 per cent of charter capital to foreign strategic investors during the previous two years, but this plan has been put on hold. The bank said that it would continue to execute this plan by the end of 2023 or the beginning of 2024.

According to VietCapital Securities, Vietcombank has been involved in CBBank’s restructuring process. Notwithstanding, given its nature as a state-owned bank, Vietcombank is required to maintain a 51 per cent state ownership ratio to 2025.

Earlier this year, the American Chamber of Commerce in Vietnam also advocated for a modification in the FOL ratio to permit more foreign interests in listed, unlisted companies and banks in Vietnam, which are currently are capped at 30 per cent.

In November, VIB also announced its plan to lift the FOL from 20.5 to 30 per cent. If approved, the plan is expected to open up opportunities for foreign investors to increase ownership at the bank. The long-awaited move is expected to spur up sentiment of foreign investors who are looking to increase their penetration in Vietnam.

Likewise, HDBank is rumoured to raise the FOL to 49 per cent under the roadmap of the EU-Vietnam Free Trade Agreement. According to Mirae Asset Securities, HDBank is one of the two privately held banks selected to loosen the FOL.

In August, HDBank’s shareholders granted approval for the bank’s participation in the restructuring of a credit institution in the form of mandatory transfer of a joint-stock commercial bank. The reported obligatory transfer from GP Bank to VPBank has not yet been confirmed.

'M&A opportunities in a volatile market' session at the Vietnam M&A Forum 2022 Session 1 of the "M&A opportunities in a volatile market" of the Vietnam M&A Forum 2022, was moderated by Seck Yee Chung, partner at Baker & McKenzie Vietnam. Keynote speakers analysed the fluctuations in major economies such as the United States, Japan, EU and their affect on M&A in developing countries and Vietnam in particular.

Evaluating the prospects of M&A upswings next year Recent global geopolitical happenings and macroeconomic factors have caused the domestic M&A market to experience a downturn. Le Khanh Lam, chairman of RSM Vietnam, talked to VIR’s Linh Le about current market trends and projections for the near future.

Harmonisation highlighted for success in merger and acquisition post-deal period Despite the lucrative potential of mergers and acquisitions, miscommunications and various other differences can derail the benefits and synergies of significant deals in the post-merger period. Seck Yee Chung, partner at Baker McKenzie Vietnam, discussed with VIR’s Celine Luu the factors of a failed takeover, as well as how to maximise compatibility from different stakeholders.