Vietnam banks set to acquire finance firms
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Several banks in Vietnam have unveiled plans to acquire finance companies to take advantage of their retail business and boost lending.
The Sai Gon-Ha Noi Joint Stock Commercial Bank (SHB) is the latest to announce such plans. With the acquisition, SHB expects to achieve its goal to evolve into a multi-functional retailer by 2015 and a strong financial group by 2020.
The finance company is expected to help SHB develop especially its consumer lending, a segment in which many foresee a boom in the near future.
The Vietnam Maritime Commercial Joint Stock Bank (Maritime Bank) recently bought a 64.1-per-cent stake in the Vietnam Textile and Garment Finance Company.
VPBank has completed the formalities in relation to the acquisition of Vinacomin Finance Company, while Petrovietnam Finance Corporation has already merged with Westernbank to become the Vietnam Public Joint Stock Commercial Bank.
Economists agree that this is a good time for banks to acquire finance companies since many state-owned corporations have been ordered by the government to pull out of all non-core businesses, including finance.
The banks’ race to buy finance companies began last October when the State Bank of Vietnam allowed the Housing Development Joint Stock Commercial Bank (HDBank) to buy out Societe Generale Viet Finance, one of the largest foreign-owned consumer finance companies in the country.
The transaction, the first of its kind, paved the way for others to make acquisitions, which will also eventually reduce the number of financial institutions, one of the targets of the banking sector reform announced by the central bank.
The race has heated up after the prime minister issued a decree on the operations of finance and financial leasing companies, allowing them to issue bank guarantees and credit cards like a bank and issue certificates of deposits and bonds to raise funds.
Analysts say the merger of banks and financial companies will be symbiotic and offers a natural synergy.
Banks can take advantage of finance companies’ large retail-customer base while the latter can profit from the vast resources of the banks.
Finance companies can also act as underwriters for companies’ bonds, shares and valuable papers, and with acquisitions banks can get a share of this pie.
Finance companies generate high profits since they lend small amounts to retail borrowers at high interest rates because they often do not require collateral from borrowers.
HDBank, for instance, made a pre-tax profit of 396 billion dong (Bt598 million) last year, with its subsidiary, HDFinance, contributing 79 billion dong.
But there is a dark side to this, analysts point out: the high rates of bad debts. According to figures from the central bank’s HCM City office, the bad debts of finance companies and financial leasing companies last year stood at 21.96 per cent and 37.53 per cent of their loan exposure.
