Vietnam in a stronger spot for Thai bankers

The fifth-largest Thai bank has snapped up Vietnam’s SHB Finance

The Bank of Ayudhya (Krungsri) – the fifth-largest bank in Thailand in terms of loans and deposits – last week announced it would wholly acquire SHB Finance from Vietnamese lender SHB, which is among the top 10 consumer finance companies in the country. The size of the deal has been rumoured to be around $156 million.

Under this agreement, SHB will transfer 50 per cent of SHB Finance’s charter capital to Krungsri and the remainder will be transferred after three years.

Seiichiro Akita, Krungsri president cum CEO said, “SHB’s local expertise and an extensive network in Vietnam complemented by Krungsri’s strength in consumer finance will enhance SHB Finance’s business competitiveness. This milestone also underscores our commitment to our ASEAN expansion strategy following the current medium-term business plan for the 2021-2023 period.”

“Currently, Krungsri has secured its foothold in the ASEAN market including a branch and a consumer finance business in Laos, a commercial bank in Cambodia, a consumer finance business in the Philippines, and a representative office in Myanmar,” the bank said in a statement.

Japan’s Mitsubishi UFJ Financial Group (MUFG) is currently the major shareholder of Krungsri, owning more than 77 per cent stake of the Thai bank. MUFG also holds nearly 20 per cent of VietinBank in Vietnam.

According to the Ministry of Planning and Investment, in the first seven months of 2021, Thai financiers invested in 23 new projects in Vietnam, with the newly-registered capital of nearly $106 million. There were nine projects registered for adjustment of capital amounting to almost $24.5 million. Meanwhile, Thai investors have made 24 capital contributions and share purchases with a combined value of $107.5 million in the given period.

Almost all investments made from Thailand have been via corporates looking to expand their value chain into sectors such as food and beverages (F&B), retail, construction, and packaging-related materials and industrial products.

Also last week, the Thai cabinet greenlit a capital injection of nearly $128.2 million for the Export-Import Bank of Thailand (EXIM Bank). EXIM Bank can use the money to support small- and medium-sized enterprise (SME) loans for investment in trading, both domestically and internationally.

Meanwhile, Vietnam’s F&B and retail market has lured numerous Thai giants, such as Central Group’s acquisition of Big C Vietnam and TCC Group’s purchase of METRO Cash & Carry Vietnam. In April, Central Retail announced its 5-year plan with an investment value of approximately $1.12 billion for the Vietnamese market.

Speaking at last week’s webinar themed Emerging Vietnam Market 2021 by the Thai Business Association in Vietnam, Cong Ong, co-founder of food distributor Good Food, said that the growth potential of the Vietnamese market has attracted many overseas financiers.

Vietnam will be the second-fastest growing economy in ASEAN with expected GDP growth of 6.5 per cent in 2021, higher than the global average of 6 per cent. It is estimated that Vietnam will be home to 17 million middle-class households in 2030, becoming the third-largest urban market in terms of consumer numbers and the fifth-largest in terms of total spending in Southeast Asia by 2030.

In addition, Ong also pointed out other favourable indicators such as the projected increase of household income by about 40 per cent in the next five years and the expansion of purchasing power in rural areas. Emerging channel formats including online channels, mini supermarkets, and convenience stores continue growing at a fast pace. Meanwhile, mass grocery retail expansion drives up per capita food consumption levels, making the Vietnamese market more attractive to Thai investors.

SCG, one of Thailand’s top industrial groups, is another active Thai investor in Vietnam. After 25 years of operation here, SCG has 21 local subsidiaries in packaging, chemicals, and cement and building materials. During the global crisis, SCG still stepped up its expansion in Vietnam by acquiring Bien Hoa Packaging in 2020 and Duy Tan Plastics this year.

Aurojyoti Bose, lead analyst at GlobalData said, “Vietnam remains a prolific market in ASEAN. It was the best performing Southeast Asian country in 2020 without a single quarter of contraction despite the pandemic. GlobalData forecasts that the Vietnamese economy will grow at an annual average of 7.3 per cent over the next three years.”

According to GlobalData’s Country Risk Index (GCRI) 2020, Vietnam is a manageable risk nation ranked 65 out of 136 nations in the GCRI Q4 2020. The country’s risk score was 42.8 out of 100 according to the GCRI, placing it in the manageable risk nations band.

“On the back of economic stability and decent risk score, Vietnam is attracting various investments from several companies globally, including those from Thailand. Along with the Bank of Ayudhya, other Thai banks are also eyeing on expansions in Vietnam,” GlobalData said.