Bank capital waits for foreign investors

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Capital contribution and share purchase will create a wave of investment when Vietnam continues to have a solid economy.

The wave of share purchase

According to data from the Foreign Investment Agency (Ministry of Planning and Investment), in the first 2 months of 2019, there were 1,039 capital contributions and share purchases of foreign investors with a total value of US$ 5.17 billion, 4.1 times higher than the same period in 2018, of which, 585 capital contributions and share purchases made an increase in the charter capital of the enterprise with the value of contributed capital of US$ 4.78 billion, and 454 purchases of domestic shares by foreign investors did not make an increase in the charter capital with a value of US $ 0.39 billion. Experts predicted that the capital contribution and share purchases will create a wave of investment when Vietnam continues to have a solid economy. Especially, in the field of banking and finance, this capital flow is expected to have a breakthrough due to high profitability and strong growth rate in recent years.

The fact proved that the above statement is totally true because in the first months of 2019, there have been many deals which have been done or committed to be done. Specifically, at the beginning of January 2019, Joint Stock Commercial Bank for Foreign Trade of Vietnam ... (Vietcombank) issued successful private shares of over 111 million shares to its partner GIC Private Limited (GIC) - the national investment fund of Singapore and Mizuho Bank Ltd (Mizuho) - one of Japan's largest financial institutions, and collected about VND 6.2 trillion (approximately US$ 265 million). GIC and Mizuho's investments have helped Vietcombank's charter capital increase to VND 37.1 trillion (approximately US$ 1.6 billion), creating a solid capital foundation, meeting capital adequacy requirements under Basel II.

In particular, the above offer for private placement of shares has reached only 1/3 over the total quantity expected for offer by Vietcombank. Previously, in September 2018, Vietcombank was approved to issue a maximum of nearly 360 million shares (equivalent to 10% of charter capital). Thus, in the coming time, it is likely that this bank will boost the offer of the rest.

Also related to one of four big banks in Vietnam, at a meeting with Prime Minister Nguyen Xuan Phuc in mid-February 2019, Mr. Kanetsugu Mike, Director General of MUFG Bank (Japan) said that, Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) has met Basel II standards and other important standards, so MUFG has always strengthened cooperation with VietinBank. As a strategic shareholder of VietinBank, MUFG is ready to support VietinBank to increase its charter capital to facilitate business.

Not only big banks, many small and medium-sized banks have also focused on attracting foreign capital. Recently, some banks have implemented plans for stock exchange listings, thereby successfully offering shares to international companies and organizations, bringing in hundreds of millions of dollars. Typically, Warburg Pincus – the world leadingprivate equity investor in companies with long-term growth potential, has invested more than US$ 370 million (equivalent to about VND 8,400 billion) in Vietnam Technological and Commercial Joint Stock Bank (Techcombank) ...

"Potential" for foreign investors is still considerable

A notable deal is the capital sale of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) to partner KEB Hana (South Korea). The experts assessed that this deal will be a positive signal to relieve the pressure on raising capital and improving BIDV's competitiveness in the retail segment. However, BIDV leaders recommended that the competent authorities should remove binding conditions for foreign investors, so that BIDV can complete the transaction of capital sale to KEB Hana Bank of South Korea in the shortest time.

Besides, one of the problems for bank owners in seeking foreign capital is the restriction from the share ownership ratio (room) of foreign investors. Near the end of October 2018, Vietnam Securities Depository Center announced the adjustment of the foreign investor’s room rate of stock code ACB of Asia Commercial Bank from 29.83% to 30%. As before, Whistler Investments Limited, together with Sather Gate Investments Limited (wholly owned by Alp Asia Finance Vietnam Limited), received a transfer and owned nearly 10% of ACB's capital, making the ACB’s foreign room rate reach a maximum of 30%.

According to current regulations, the share ownership ratio (room) of a foreign strategic investor must not exceed 20% of the charter capital; the total shares owned by all foreign investors in a domestic credit institution shall not exceed 30%. Banks noted that this is a big barrier.

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Thus, looking at the current market, we can find that potential for foreign investors is still considerable, especially when the Scheme "Restructuring the stock market and insurance market until 2020 and orientation by 2025" has just been approved by the Prime Minister at the end of February 2019, requiring that by the end of 2020, all commercial banks must make a listing and register trading on the official stock exchanges HoSE, HNX and UPCoM. However, opening more "doors" and adding "land" to foreign investors in each bank needs careful roadmaps and consideration, avoiding negative impacts on the whole system.