What are the banks planning when selling its “darling”?

Many banks plan to sell shares of finance companies.

Billion dollar deal

According to the State Bank's statistics, Vietnam has 16 licensed and operating finance companies. Of which, six finance companies are members of commercial banks, including: Vietnam Prosperity Banking Company Limited (FE Credit) of VPBank; HD Saison Finance Company Limited of HDBank; Saigon - Hanoi Commercial Bank Finance Company Limited (SHB Finance); MB Shinsei Finance Limited Company (Mcredit) of MB; Postal Finance Company Limited (PTF) of SeABank, and Community Finance Company Limited (FCCOM) of MSB.

Most recently, VPBank selling 49% of the charter capital of Sumitomo Mitsui Financial Group (SMFG, SMBC Group) caused a stir in the financial world as the amount of money raised was $1.37 billion. This is considered the largest merger and acquisition (M&A) deal in the banking sector in Vietnam.

In the past few years, many banks have also announced plans and plan to sell off stakes in their subsidiaries.

At the recent 2021 Annual General Meeting of Shareholders of MSB, responding to a plan to sell capital at FCCOM, Nguyen Hoang Linh, General Director of MSB, said in 2020, he agreed to sell 50% of shares to Hyundai Card. By the end of 2020, this partner changed its business strategy, so he withdrew from the deal and compensated MSB monetarily. MSB is currently working with another foreign partner, which has almost finished the negotiation and pricing process.

Similarly, since 2020, SHB has released information about plans to sell capital at SHB Finance. The leader of this bank said SHB has selected a number of major partners and is negotiating to divest capital at SHB Finance, which is expected to be completed in 2021.

Previously, HDBank and MB sold 49% capital to Japanese partners (Credit Saison and Shinsei Bank). Meanwhile, Techcombank transferred 100% capital of Techcom Finance to Lotte Card Company (Korea).

Return value greater than the profit contributed

It can be seen that the potential of consumer finance in Vietnam has helped banks always "sell off customers" in the sale and purchase of owned finance companies. Foreign partners from Japan and South Korea always pay more attention and the proof is that there have been many agreements signed in recent years.

According to experts, in recent years, the profitability of consumer finance companies has been quite good. In 2019, it is 15-25%, in 2020, despite the pandemic, the profitability of consumer finance companies will decline, but still at a high level.

For example, with VPBank, in 2016-2019, FE Credit normally contributed 45-50% of VPBank's total consolidated profit. As of December 31, 2020, the total credit balance of FE Credit is VND 66,000 billion. But in 2020, FE Credit's pre-tax profit will top 3,700 billion VND, down 17% year-on-year. However, this finance company still contributes about 28% to VPBank's consolidated pre-tax profit. Therefore, FE Credit is valued at $2.8 billion.

According to Nguyen Duc Vinh, General Director of VPBank, the sale of shares in FE Credit is not VPBank removing the "golden egg", but will bring greater value through capital and value of cooperation to expand business, looking for development opportunities in new areas. It is likely that in 2021 or the first 1-2 years after the sale, profits from FE Credit may decrease slightly or not increase, but FE Credit will continue to be an important business segment for the bank.

Similarly, with MSB, the bank's leader also expects divestment from FCCOM will bring a relatively large profit. SHB hopes to choose a partner in the spirit of bringing benefits to SHB and its shareholders. In particular, giving priority to good prices but still having to choose investors with the same strategy, companionship, support and cross-selling to each other to promote short-term development and long-term strategy.

Many experts have said that, despite the large profit margin, banks still divest capital, this is to increase financial strength and expand. Furthermore, banks typically only sell 49% of their shares, meaning they still control the operations of financial companies.