Banks acquiring finance companies to develop retail banking
Banks acquiring finance companies to develop retail banking
Only one commercial bank, SHB, has officially announced its plan to acquire a finance company this year. However, analysts say this is not an unusual phenomenon.
The State Bank’s latest report on finance companies disclosed that Vietnam had 18 companies by June 30, 2013. However, one of them, the PetroVietnam Finance Corporation (PVFC), has since turned into a commercial bank.
Every economic group has a finance company
Of the 17 operational finance companies, 12 are subsidiaries belonging to state-owned economic groups or general corporations.
Of the five non-state invested finance companies, Viet-SocieteGenerale changed its name into HD Finance, a 100 percent Vietnamese owned company. Meanwhile, the remaining four are all foreign invested:Prudential (UK), PPF (the Netherlands), JACCS (Japan) and Miare Asset (South Korea ).
The origins of the companies demonstrate that only the big businesses, either state-owned corporations or finance groups, have joined the finance company market.
Therefore, the bad business performance of the “big guys” really surprises analysts.
A report submitted by the State Bank of Vietnam to the National Assembly in November 2013 showed that the watchdog agency has discovered another 8 weak credit institutions, including 2 banks and 6 non-bank institutions.
Analysts assumed that the 6 non-bank institutions were finance companies, because the Central People’s Credit Fund, an ineffective institution, had already been restructured.
Time for finance companies to change hands
The most important reason analysts believe there will be a wave of finance company restructuring is that state-owned corporations have been told to withdraw their investment capital in non-core business fields as soon as possible.
The capital withdrawal will pave the way for more merger & acquisition (M&A) deals to be made. However, unlike the deals of Viet-SocieteGenerale and SHB Bank, which were made on a voluntary basis, the next M&A cases will be compulsory and with the intervention of the State Bank.
After admitting HBB, a weak bank which had to undergo a compulsory restructuring as ordered by the State Bank, SHB now has more favorable conditions to expand its business. Acquiring a finance company could be a part of the expansion plan.
It’s unclear which finance company SHB will target. However, SHB has “close relations” with a lot of large corporations. Vinacomin, the coal miner, for example, is holding 4.1 percent of SHB’s stakes. The coal group is also holding 8.22 percent of SHB Securities, a subsidiary of SHB.
Meanwhile, 4.2 percent of SHB’s stake is being held by the Vietnam Rubber Group, which is also holding 4.11 percent of SHB Securities’ stakes. Besides, a subsidiary of the rubber group has 1.06 percent of SHB Securities’ stakes.
Therefore, analysts believe that the finance company SHB is targeting is the one belonging to one of the two groups.
They also noted that commercial banks, after tasting failure in investments in non-core business fields and having difficulties in wholesale banking, may shift their focus to developing retail banking. If so, finance companies would serve as a useful instrument for them to do this.
vietnamnet
