Global events hinder bank IPO plans

Global events hinder bank IPO plans, illustration photo

A raft of financial institutions including Maritime Bank (MSB), Nam A Bank, OCB, Viet Capital Bank, Bao Viet Bank, and others have been laying the groundwork for going public for years. Should all the deals go off as proposed, 2019 and 2020 would be the busiest period for initial public offerings (IPOs) of both private and state-owned lenders.

But as of now, there are 18 out of 31 commercial banks operating in Vietnam have already gone public.

Last September, Viet Capital Bank registered with the Vietnam Securities Depository to trade more than 317 million shares on the UPCoM, but its IPO final destination has yet to be confirmed.

Meanwhile, Nam A Bank extended the deadline for its shareholders’ list last March.

In another case, OCB has still stuck in the mud for years with its IPO ambition.

Additionally, the postponement of VIB and LienVietPostBank from the UPCoM to the Ho Chi Minh Stock Exchange is the latest hiccup among public deals.

Last month, the State Bank of Vietnam (SBV) officially approved Nam A Bank’s increase of charter capital. The bank also signalled that it is eyeing overseas cash since its foreign ownership ratio has remained unchanged.

Bao Viet Bank – a subsidiary of Bao Viet Holdings – has already formulated its recipes for an IPO, but the lengthy year-long preparation has yielded no fruit until now.

But perhaps no other long-awaiting IPO illustrates the cruel circumstances of the process better than that of Eximbank.

Eximbank is not receiving much attention from investors. Market watchdogs have been raising questions about its prudence since the bank has faced an uphill battle to regain the trust of its shareholders and depositors, following a series of embezzlement and fraud scandals.

Le Xuan Dong, director of market research at intelligence platform FiinGroup, emphasised that late 2015 to the first half of 2018 was the golden time for filing as Vietnam witnessed a spate of prosperous IPOs such as Techcombank’s $923-million public issue, or those involving VPBank and HDBank.

After feverish buying of banks’ shares last year, particularly BIDV, Vietcombank, and Military Bank, market sentiment towards these issues has cooled down.

Last year, MSB’s profit did not live up to expectations since the bank has not yet recorded the VND600 billion ($26.1 million) sale of 50 per cent of shares in its consumer finance arm FCCOM to South Korean firm Hyundai Card.

Experts believed that this upcoming amount could write off its sour loans in Vietnam Asset Management Company, paving the way for going public in the second quarter of this year. Nevertheless, valuation of MSB shares is roughly calculated at a price-per-book ratio of 0.8 times, relatively lower than the industry average.

Investors, therefore, could be wary of MSB’s slowing growth and elusive profits.

Challenges still colour the banking landscape and hamper IPO plans, as a result of low efficiency, low return on equity and low return on assets than the industry average, while the non-performing loans are still of high rate.

Going public means that banks have to be more transparent in their business activities and financial statements, in which many banks fail to meet the norms.

Last week, the SBV ordered banks to delay or cut lending rates to cushion the domestic economy, a move bringing about foreseeing lacklustre profit for financial institutions.

JPMorgan researchers believe the risks are probably more skewed to the downside across the globe, particularly in the near term given uncertain factors like the COVID-19 outbreak.

Considering the sweeping changes to risk-weightings IPOs will usher in, banks are seeking to re-allocate current capital by various instruments, such as bond issuance. Such factors have kept some banks away from floating their public issues.

OCB chairman Trinh Van Tuan previously admitted the bank had “been in the process of going public in late 2019 or early 2020”, but is still stuck in the mud with its IPO ambition due to “unfavourable market conditions”.

Representatives of OCB also made it clear that the bank is opting for other overseas financiers after mulling the sale of 11 per cent of its charter capital to Japan-headquartered Aozora Bank at around $52.8 million.

Furthermore, Moody’s downgraded the outlook of 18 local banks, including some unlisted ones, making capital mobilisation even tougher.

Some lenders that are still working towards IPO, such as OCB, ABBank, Agribank, or Nam A Bank, will likely be exposed to more volatility after the vote of no confidence.

Financiers looking to invest in state-owned lender Agribank are being urged to stay their hands after its IPO was postponed, adding to the list of state-owned enterprises delaying equitisation.

Nguyen Duc Hung Linh, SSI’s head of analysis added, “Large IPOs or sell-downs concentrated in the first quarter of 2018 before the VN-Index plummeted, making investors shy away from IPOs.”

Researchers at consultancy Ernst & Young meanwhile wrote in a report that “lenders that are well prepared to capture the right IPO window, are flexible on valuations, and understand regulatory requirements will have a clear advantage.”