The importance of mutual respect and face-to-face talks for strategies in M&A

August 24, 2022 | 18:00
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The Vietnamese government is now working to reorganise weak financial institutions, as well as implement equitisation of state-owned banks. Yoshizawa Toshiki, board member at Orient Commercial Joint Stock Bank, told VIR’s Luu Huong how the wave of tie-up deals could expand significantly if local authorities could lift the foreign ownership limit.

How would you assess the foreign appetite for mergers and acquisitions (M&A) transactions in the Vietnamese market?

The importance of mutual respect and face-to-face talks for strategies in M&A
Yoshizawa Toshiki, board member at Orient Commercial Joint Stock Bank

I believe there will be a significant rise in the wave of M&A transactions in Vietnam, spanning across a wide range of industries.

Japanese businesses were unable to go to Vietnam last year, which significantly hampered the M&A process. As soon as the pandemic is fully under control, they will begin looking towards tie-up options here.

Japanese groups that are interested in working with their Vietnamese partners should visit the country and meet potential business partners face-to-face before executing any final decisions.

In what ways are Japanese investors looking to become involved in Vietnam’s banking and financial market?

We are the fourth Japanese bank to invest and become a foreign strategic stakeholder in a Vietnamese bank. The Vietnamese financial industry is among the most attractive segments for both medium- and large-sized Japanese banks to generate alpha. Particularly, the current strategy of the Vietnamese government will be placed on equitisation and reform of weak, low-quality banks. This opportunity, consequently, would unlock vast potential for international investors.

In order to entice foreign investors, should Vietnam expand the foreign ownership limit (FOL) ratio in the banking industry over the present ceiling of 30 per cent?

It has not escaped my attention that Aozora Bank, as a strategic stakeholder of Orient Commercial Joint Stock Bank (OCB) and like many other Japanese investors, would want to see the government and the State Bank of Vietnam provide foreigners wider access to the country’s banking and finance systems.

While a 100 per cent participation rate is ideal, I anticipate that this is unquestionably challenging in terms of the policy. Hence, we would expect a minimum FOL of 49 per cent, which would boost overseas financiers’ confidence and strengthen their commitment to the Vietnamese market over a longer timeframe.

Many foreign investors do not have a significant voice with the maximum foreign ownership cap under present restrictions in Vietnamese banks. What is the situation with Aozora and OCB?

The importance of maintaining a recognisable voice and mutual respect in the context of a strategic collaboration partnership between two organisations coming from different countries should not be underestimated.

I’ve heard that the relationship between Japanese investors and Vietnamese banks is strained. The voices of Japanese partners are rarely properly acknowledged. In our case, Aozora has maintained a close-knit connection with OCB, and this provision is also agreed upon by both parties in the strategic partnership pact.

How does Aozora intend to collaborate with OCB going forward?

We assess that OCB is promoting the growth of retail banking services, which includes Japanese enterprises, but these customers still make up just a tiny percentage of the bank’s overall client base. Therefore, we act as a bridge to introduce trustworthy clients to OCB’s services, such as deposits, domestic and international money transfers, internet banking, and commercial products.

In addition, OCB is also preparing to provide M&A consultancy services thanks to the bank’s extensive network of current corporate customers throughout Vietnam and its strong connection with local and global financial institution partners. Aozora has a long history of success in the M&A sector in Japan.

Hence, we are confident that our expertise will assist Japanese groups in successfully penetrating overseas markets, either directly or indirectly. Vietnam, as a young and vibrant market, is among the top locations for Japanese investors to capitalise on.

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By Luu Huong

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