Unlisted local commercial banks must consider a raft of matters if they are to list by 2020 under the latest government scheme.
All Vietnamese commercial banks must list by the end of next year under a scheme approved by Prime Minister Nguyen Xuan Phuc on restructuring the local stock and insurance markets by 2020 with a vision towards 2025.
Lenders can choose HSX, the Hanoi Stock Exchange (HNX), or the Unlisted Public Company Market (UPCoM).
There are currently 14 unlisted banks, with only 17 out of a total of 31 having done so. Of the leading banks, Vietcombank, BIDV, VietinBank, HDBank, and VPBank are listed on HSX, while three others are listed on HNX and four on UPCoM.
Some mulled over debuting on the stock market last year but failed to proceed, such as OCB, Nam A Bank, and VietBank.
Flicking through the AGM agenda of many banks, most either plan to list or switch from UPCoM to HSX. Nam A Bank CEO Tran Ngoc Tam recently confirmed its commitment to finalizing its listing on HSX this year, with leaders of OCB also confirming plans to do likewise.
Representatives from the privately-held LienVietPostBank and Vietnam International Bank (VIB) also revealed plans to move from UPCoM to HSX, with both moves also slated for this year.
The success of TCB, TPB, and HDB in listing on HSX are good case studies for those with the task ahead, according to Mr. Le Xuan Dong, Director of Research Services at FiinGroup (formerly StoxPlus).
Those three banks all improved their capital adequacy through share sales either via public offerings or private placements.
For example, TCB successfully raised more than $1 billion last year from both a new share issuance and the sale of existing shares, while TPB also completed the private sale of 87.63 million shares to more than 20 investors, pulling in around $96.5 million.
Mr. Dong believes MSB and OCB’s listings are the two most anticipated by the market. MSB leaders told its AGM that the IPO is expected to increase capitalization to $1.1 billion after reselling all treasury stocks to select investors.
The bank has set ambitious targets for 2019, with pre-tax profit at $79.5 million, or 77 per cent higher than in 2018, while OCB has recently announced it is one of the first banks to comply with the Basel II standards.
Other banks currently trading on UPCoM and looking to go on to official exchanges include LienVietPostBank, VIB, North Asia Bank, and Kien Long Bank.
Pressure vs. motivation
It’s perfectly clear that urging all banks to go public will be a catalyst for the whole banking sector to move ahead into the future.
Listed banks will have more opportunities to approach new equity from a wide range of investors.
Following not only State Bank of Vietnam (SBV) regulations but also those of the State Securities Commission (SSC) and the requirements of stock exchange will also gradually enhance transparency in corporate governance.
The landscape of Vietnam’s banking sector will certainly change if all plans go forward, Mr. Dong noted.
“Listing would help them deal with undercapitalization, which has been an issue for many years,” he said. “Vietnamese banks have been relying largely on deposits as a source of funds to finance their credit growth.”
Meanwhile, Ms. Do Minh Trang, Head of Financial Services, Research Division, at the Ho Chi Minh City Securities Corporation (HSC), doesn’t believe the new scheme is a magic elixir for the banking sector because more than half of all local banks have listed already, and in terms of either total assets or charter capital they account for a market share of more than 70 per cent.
“Having all banks list would be a plus for the sector but its effect shouldn’t be overestimated,” she said. “The early bird gets the worm. Both 2017 and 2018 saw successful listings from the banking sector.”
Those listed already might provide motivation for others to do likewise but also add pressure. In Ms. Trang’s opinion, the pressure is now greater than the motivation due to expectation of high valuations. “The golden period for listing with a very high valuation has passed and may not return for several more years,” she said.
Raising capital through stock markets also helps banks comply with the Basel II standards.
The headline overall capital adequacy ratio of Vietnamese banks is at 12.17 per cent, according to the SBV at the end of 2018, but varies between Tier 1, Tier 2 and the smaller banks. Local banks are also under pressure to maintain the cap of 40 per cent on short-term liabilities against long-term credit, which may come down to 30 per cent if a draft regulation is approved.
“Though the long-term deposit ratio has improved significantly, share capital issued via the stock market would be a very important means for banks to improve their Tier 1 capital,” Mr. Dong said.
Going public would not only boost capital adequacy and prudential ratios but would also help improve financial and operational transparency at banks, which in turn would be an advantage in attracting more foreign capital.
Foreign ownership in Vietnamese banks in general is still notably low, at 16.89 per cent against an ownership cap of 30 per cent, according to FiinPro.
If shares of all 31 banks were to be floated, total market capitalization would then represent 120 per cent of GDP, which is the scheme’s target by 2025.
The pressure to list would also be a catalyst for sector consolidation, which has been tardy compared to expectations set out in previous versions of sector development policies and guidance.
Shareholders of small and weak banks would be happy to see the bank merge with a stronger bank than list on a low valuation.
The implementation of the scheme, however, faces several hurdles, including the reaction of banks’ major shareholders and overall stock market sentiment.
A healthy stock market provides stronger motivation for banks to list as a means of increasing shareholder value, fulfilling the requirements of the scheme.
The greatest challenge local banks may face in the future when going public is a paucity of investor demand,
according to Ms. Trang. There is ample evidence that successful listings have depended upon not only corporate strength but also on good timing.
“Given the unfavorable market conditions in recent months, with very low daily trading volumes, I’m afraid the demand for bank stocks in general might not be as strong as seen in the last two years,” she said.
Another impact for OTC banks who want to go public may come from the high capitalization now seen in the banking sector.
Listing only involves a few procedures, but if they want to issue more shares to enhance capital they might find that the competition is fierce.
Most banks have plans to issue more shares, primarily via private placements, when market conditions permit.
The listing procedures are not problematic for banks; the main challenge is how to secure the interest of investors and traders. Having a good growth story is the most important factor, in FiinGroup’s opinion.
“This is especially important for foreign investors, since they all come to Vietnam seeking high growth,” Mr. Dong said. “Small-sized banks without a clear storyline will struggle to be successful.”
Of course, stock market momentum at the time of listing is key. “This is something we can’t predict, but the current market consensus is that the stock market will post good performance this year,” he added.
“In our latest data review, earnings per share (EPS) growth of listed companies is estimated at 14.5 per cent despite weak results in the first quarter of this year.”
VN Economic Times