Japanese corporations’ rising interest in Vietnam’s banking sector is a natural process, which stretched back for the last ten years, experts told Hanoitimes.
Japan's largest bank MUFG Bank is willing to support VietinBank in increasing the latter's charter capital.
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In 2007, Sumitomo Mitsui Banking Corporation (SMBC), one of the largest and oldest banks in Japan, signed a cooperation agreement with Vietnam Export-Import Commercial Bank (Eximbank). SMBC is currently Eximbank’s largest shareholder, holding a 15% stake.
Meanwhile, state-run Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the country’s largest bank by market value, announced the plan to increase its charter capital at the end of 2018 by offering a maximum of 10% stake or 360 million shares to foreign investors.
With the green light from the State Bank of Vietnam (SBV), the plan went ahead with the first batch of 3% stake sold in late January 2019. Japan’s Mizuho Bank - the largest foreign shareholder of Vietcombank - purchased an additional 16.66 million shares in order to maintain its stake holding of 15% in Vietcombank.
So far, Vietcombank is Mizuho’s sole investment in a foreign bank.
Last October, Eiichi Yoshikawa, vice president of Japanese largest bank MUFG Bank, revealed the intention to increase its stake holding in Vietnam’s state-run Joint Stock Commercial Bank for Foreign Trade of Vietnam (VietinBank) to 50%.
Currently, MUFG Bank is the largest strategic shareholder of VietinBank with a 19.73% strategic stake.
Most recently, Japanese investment management firm J Trust is looking to acquire a sizable stake in Vietnam Construction Joint Stock Commercial Bank (CBBank), which is one of the three ailing banks the central bank bought for zero dong in 2015.
Tokyo-based J Trust will contribute capital and support the bank in terms of technology and financial operations, said Nobiru Adachi, senior managing director at J Trust Co, at the meeting with Deputy Prime Minister Vuong Dinh Hue on March 29.
Natural move
Banking expert and Senior Advisor of the management board of National Citizen Bank (NCB) Nguyen Tri Hieu.
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“Japanese investors feel they could understand Vietnamese culture, which motivates them to do business in Vietnam,” Hieu said.
Being one of Vietnam’s top investors, the presence of a large community of Japanese enterprises in Vietnam makes it a natural move for Japanese banks coming to Vietnam to serve their traditional customers, Hieu added.
Echoing Hieu’s view, Chief Representative of the Japan External Trade Organization (JETRO) in Hanoi Hironobu Kitagawa commented “due to the increasing number of Japanese companies expanding in Vietnam as well as increasing domestic consumption, Vietnam becomes more attractive as an investment destination for Japanese banks.”
“However, the most important point would be the attractiveness of Vietnam’s banking sector, which brings high added value for Japanese investors,” Hieu continued.
A report released recently by international rating agency Moody’s also predicted Vietnamese banks will gain further improvement in profitability in 2019, again because of wider net interest spreads and lower credit costs.
“Vietnamese banks achieved a higher aggregate return on assets for a second year running, registering a rise of 1.1% in 2018 from 0.9% in 2017. Aggregate net income for the banks also rose 35% to VND70 trillion (US$3 billion) last year from the previous year, despite a moderation of credit growth,” Moody’s said in the report.
“Japanese banks will get benefits as Vietnam’s financial market is expected to expand along with the economic growth,” Kitagawa said.
Chief Representative of the Japan External Trade Organization (JETRO) in Hanoi Hironobu Kitagawa.
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In a meeting with major Japanese financial corporations last October, Prime Minister Nguyen Xuan Phuc said he hoped Japanese enterprises to participate in the reform and modernizing process of Vietnam’s banking and financial sector, especially through the acquisition of weak banks and turning them into wholly foreign-owned banks.
As Vietnam and Japan have forged an extensive strategic partnership, cooperation in the finance – banking sector is also strong, Phuc stated in a meeting with Kanetsugu Mike, president and CEO of Japan’s MUFG Bank in February.
Referring to the issue of bank acquisition, SBV’s Governor Le Minh Hung added in case of weak banks, there is no limit to foreign ownership ratio, which could go up to 100%.
Bui Quang Tin, CEO of Bizlight Business School, pointed out that the government’s efforts to call for foreign inflow to the banking sector, improvement in business performance and asset quality of local banks have contributed to intensifying trust of foreign investors.
Higher foreign holding a necessity
According to Hieu, with Vietnam’s open policy in the banking sector and its extensive effort in global integration, “a competitive environment resulted from the process would create conditions for Vietnamese bank enhancing their efficiency and accessing new market.”
Meanwhile, Kitagawa expected the cooperation between two countries’ enterprises “a win-win relationship,” as “ it helps to cover each other’s weaknesses and sharpen each other’s strengths.”
“Vietnamese banks can draw abilities in banking that Japanese banks cultivated,” he added.
Despite strong encouragement from the government for investment in the banking sector, the current 30% cap on foreign ownership for well-performing banks is making it hard for Vietnam to attract more investors, Hieu said.
“Investors want the 51%-stake holding to better control their capital and contribute more efficient to local banks,” Hieu added.
Nevertheless, Hieu acknowledged the government’s concern of banks being manipulated if foreign ownership cap is to be removed, which is a shared concern globally.
“But the SBV has all monitoring and supervising instruments in hands to prevent the issue from happening, and in this case, the benefit may outweigh the risk,” Hieu concluded.
