HDBank’s Board of Directors last week published a document to collect written opinions from shareholders on participating in a credit institution restructuring programme. Specifically, HDBank would contribute up to $391.3 million to take over a weak bank.

HDBank would be able to exclude any newly-transferred struggling bank from its capital adequacy ratio, Le Toan

After HDBank participates in the restructuring, the aforementioned commercial bank would operate as a limited liability bank with 100 per cent charter capital owned by HDBank.

Currently, Ocean Bank, GPBank and CBBank are struggling lenders subject to special supervision by the State Bank of Vietnam (SBV).

A consolidated financial statement would not be required, and HDBank would be allowed to exclude the newly-transferred bank from its consolidated capital adequacy ratio. Furthermore, the capital contribution to the transferred bank is excluded when making provisions for the devaluation of investments and calculating the limit for HDBank’s capital contribution and share purchase.

“While this is a compulsory transfer, it does bring benefits and create opportunities for HDBank and shareholders. With the preferential mechanism to supplement the annual credit growth limit, HDBank can achieve a breakthrough in growth and become one of Vietnam’s top banks in the next five years,” a bank representative said.

According to SSI, HDBank would stand to gain significantly from the transaction since it will be treated favourably by the SBV in the form of a boost to its annual credit growth limit and other assistance in accordance with the Law on Credit Institutions.

“HDBank’s distribution channel network will be able to grow and its coverage area will improve if the bank takes part in the reorganisation,” said Ha Nguyen, financial analyst at SSI. “While details have not yet been made public, we are fairly positive on this plan despite the initial capital contribution.”

Observing recent proposals related to the weak banks, Nguyen said it appears that large incentives are needed in each case. “With respect to HDBank, we are of the view that the net rewards will be backloaded unlike was the case with Vietcombank and MB, which are the potential acquirers of two other weak banks,” Nguyen added.

Last year, a reported deal between HDBank and PGBank turned sour, as confirmed by representatives from both sides. PGBank said that although the deal received in-principle approval from the SBV in 2018, the tie-up had not been officially approved due to unspecified reasons. Previously, PGBank almost sold stakes to VietinBank and MSB.

CBBank, OceanBank, and GPBank are the three commercial banks obliged to carry out buy-backs as part of the commercial banking system. In addition, DongA Bank is currently going through restructuring. Prior to that, Vietcombank and MB began to exhibit signals of participation in the reorganisation of weak banks in preparation for compulsory purchase.

CBBank, one of three struggling lenders, and Vietcombank have been partners since 2014 when the latter began providing administrative and managerial assistance to the former. However, neither Vietcombank nor MB has officially acknowledged having received any bank transfer as of yet.

MB vice chairman and CEO Luu Trung Thai revealed that after restructuring a weak lender, MB may choose to consolidate and sell to another credit institution or divest it via an initial public offering.

“The transfer would allow MB to capitalise on additional developing opportunities for rapid-scale development, hence boosting its market footprint,” Thai added. “To ensure this bank’s operating capability and debt quality, MB plans to transfer certain high-quality loans to credit institutions. Non-performing loans represent around 47 per cent of the total at the struggling bank right now.”

In the meantime, BRG-backed SeABank is contemplating making an offer to sell roughly 13.8 per cent of the bank’s charter capital. It has not decided what it wants out of the possible merger just yet.

Likewise, Japanese financial institution SMBC is reportedly the potential strategic shareholder of Hanoi-based VPBank after its landmark deal with FE Credit.

“The private placement of 1.19 billion shares, equivalent to 15 per cent of VPBank’s charter capital, to a foreign investor was behind schedule due to domestic and global uncertainties,” said Nguyen Anh Tung, senior analyst at KB Securities. “However, VPBank still hopes to complete the tie-up by the end of this year.”