Vietnam Prosperity Bank, commonly known as VPBank, will list its 1.3 billion shares on the Ho Chi Minh City Stock Exchange on August 17 at a reference price of VND39,000 apiece.
With a $2.3 billion valuation, the Hanoi-headquartered lender is the fourth-largest bank after three state-controlled banks Vietcombank, BIDV and Vietinbank. Other publicly listed banks in Vietnam include Sacombank, Eximbank, Asia Commercial Bank and Military Bank.
While Vietnam has around 40 banks, the number of listed banking stocks is still limited due to investor appetite. At a roadshow of VPBank on August 15, VietCapital Securities – VPBank’s advisor for the listing – said overseas investors had subscribed to VPBank shares with total bids worth $1.2 billion.
Nguyen Duc Vinh, CEO of VPBank, told DEALSTREETASIA in a recent interaction that VPBank shares will be an attractive investment opportunity for financial investors. Meanwhile, the lender does not plan to offer a strategic stake. “Instead of picking a strategic shareholder, amid various cases that we might not share the same vision, we look for business partners, strategic advisors and hire key talent,” he said.
While VPBank has not yet decided on roping in a strategic shareholder, the recent $57 million convertible loan by the International Finance Corporation (IFC) comes with terms that IFC be entitled to a 5 per cent equity of VPBank and become a major shareholder. Vinh revealed that the bank will continue to have 100 per cent ownership of its consumer finance unit, FE Credit, as the focus of the bank at the moment was on the listing and private placement to local investors.
Edited excerpts:
Following the listing, VPBank will become one of the largest lenders on the stock market. What are the investment opportunities after VPBank is listed, especially when Vietnam has not yet seen a lot of banks floating shares?
It is an important milestone for VPBank to become a listed bank at this time. It reinforces our well-established position and integrity. The opportunities for investors as well become more obvious because we need to be more transparent. We have been well operated, but the urge to be more transparent increases when the shares are publicly traded. VPBank will be an attractive offer to financial investors, given there have not been many listed banking stocks. For us, the listing is an opportunity to review our growth path and therefore build up a development strategy as per investors’ demand. It will facilitate VPBank in doing better to secure our position and even evolve to a higher level.
What is your plan in selling stakes to institutional investors?
We have not planned to get any strategic investor. We plan to issue a private placement to domestic investors to raise our capital, which was approved by our shareholders earlier this year. We think there are multiple ways to achieve the goals that have been set. As long as it is a suitable strategy for the business, the availability of a foreign strategic investor is not the decisive factor. In practice, we have seen a number of limitation to the business when foreign strategic investors are involved. Instead of picking a strategic shareholder, amid various cases that we might not share the same vision, we look for business partners, strategic advisors and hire key talents. We adopt the best practice in the industry by hiring experts with deep experience through various institutions. Half of our management are experts in foreign banks. Vietnamese bankers are also very good, but we want to make the most of the resources that have operated the models that VPBank is following. They are specialists in risk management, debt collecting, credit approval, consumer credit, and network expansion. In that sense, we see it work effectively, nothing less than having a strategic investor.
Do you intend to sell FE Credit?
In the past, VPBank had looked for a partner to sell part of its stake at FE Credit. FE Credit operates in consumer finance, a new and risky segment. So we thought we needed a strategic partner in this area to join us. In addition, we had planned to raise some capital for the bank through the tentative sale of FE Credit. However, when we targeted to list, we decided to cease the sale to focus on VPBank’s listing and private placement, which is our priority to enhance our capital capacity. The private placement will go first to help us raise funds. The capacity from the parent bank will then be used to facilitate the business growth of subsidiaries including FE Credit. In the meantime, seeking a strategic partner for FE Credit’s long-term growth is still on the agenda, and VPBank will consider the timing.
Why does VPBank strategically choose SMEs and consumer credit as the core of business. What is the potential of this market?
In 2012, we underwent a transformation and set a goal to become a leading retail bank of Vietnam. We are strong in SMEs, micro business and consumer finance segments, and do not want to compete in non-core areas. The corporate customer base for the local industry is around 600,000 companies, of which SMEs account for 97 per cent. Most of the existing lenders in the country are competing for the 3 per cent. The segment for large corporates is not our strength, while we can provide the best products for the other segment. Up to 97 per cent of Vietnamese businesses are SMEs, so the potential is great. A lot of those companies are micro businesses, and are thirsty for capital. The consumer finance market is also very promising, with the population estimated at 100 million by 2025, and the economy growing amongst the fastest in the region. That, coupled with speedy urbanization and the rising youth, will drive consumption demand. These are the conditions for the market to grow day by day. Our credit growth and profit margin for these two verticals are very positive.
What are the specific steps that VPBank has applied in executing that strategy?
We do it by doing very differently from other banks. In the past few years, VPBank has opted to go into the segments and models which might be riskier. Any choice has its price. In return for high risks are higher rewards. The rewards that we have achieved have been good revenues and profits. Meanwhile, other banks might be very traditional. They might also be looking at SME banking or retail banking. Everyone has recognized the potential of the 94 million people market. But each bank has a different approach and gains a different level of success. At the moment, our method is the fastest to see results. Other banks might apply methods that will show results in several years.
Which is the best way to view the issue of non-performing loans?
How does NPL management look like at VPBank? VPBank, or any other lenders, have to comply with the State Bank of Vietnam’s regulations on provisioning. For a bank, we should look at the structure of loans and the risk provisions when we talk about bad debts. At VPBank, risk management is always at the forefront because we are operating in a riskier segment with lots of unsecured loans. In that case, we need even more stringent backup mechanism. Since 2012, we established a risk management division and applied customer classification methods. We have also spent huge amounts on provisioning. Last year, we led the private banks’ group in terms of provisioning with the cost of VND5.5 trillion. The amount in the first half of 2017 is VND4 trillion, and we plan to spend VND8 trillion. We have enough reserves to deal with bad situations.
What is VPBank’s position compared to peers in the region?
In terms of total assets and equity capital, VPBank ranks in eighth and sixth place, respectively. However, VPBank is the most effective banking business in Vietnam. Our 2016 profit after tax reached VND3.935 trillion, placing us only after the biggest commercial banks who have much larger assets and capital. In the first six months of this year, our profit was VND2.6 trillion, placing us after the three largest state-controlled banks. However, our Return on Average Equity (ROAE) last year was the highest at 25.7 per cent.
What is the strategy for the next five years?
The room for us to tap consumer credit, SME and micro businesses will continue to be viable in the next three to five years. While the market will be more competitive, we have our own edge as a first mover. Other than that, we have started to think about ‘What’s next’. For me, half of my time goes towards running today’s business strategy, and the other half for future plans. We might explore expansion in digital banking and affluent banking.
Source: https://www.dealstreetasia.com