PVFC Buying into Western Bank: New but Hard

According to information provided from major Western Bank shareholders, the two parties formally signed an agreement in principle on share transfer to PVFC. In a recent report, Bao Viet Securities Company (VCBS) updated that the Hochiminh Stock Exchange (HOSE)-listed Kinhbac City Development Share Holding Corporation (KBC) will transfer all its 26.5 million shares in Western Bank. By combining information, investors highly believe that the possibility Western Bank will be transferred to PVFC is up to 80 percent.

 

In early 2011, Western Bank had a chartered capital of VND3,000 billion, over 78 branches in 20 provinces and cities across the country, and more than 827 employees (more than 90 percent aged under 40). According to its financial statements, nearly 30 percent of Western Bank assets were securities (bonds and stocks) and real estate at the end of 2011. Bad debts were 1.2 percent at the end of 2011. With the owner’s equity of VND3,000 billion, Western Bank mobilised VND12,629 billion deposits from customers and VND3,815 billion from other credit institutions to raise its capital base to more than VND20 trillion in late 2011.

 

In fact, the information that PVFC gets hold of Western Bank has circulated for several months. This is seen as an active effort of PVFC in the restructuring process. Buying a bank is a strong step.

 

In fact, in a document on long-term development strategy published in April 2012, PVFC mentioned its transformation into a bank. Then, many rumours about its accelerating process of buying a commercial bank appear on local media.

 

Thus far, the corporation has not provided any information but the market is seeing this as an unprecedented restructuring case. First, this is the first time a financial company acquires a bank. And, this move may lead to the formation of a new bank. So, is this allowable and consistent with the banking restructuring roadmap which aims at eliminating weak banks from the system.

 

PVFC is the largest financial company in Vietnam today with a registered capital of VND6 trillion and a total asset of VND93 trillion. Its operations have long gone beyond the scope of a financial company.

 

However, a financial company is not allowed to mobilise capital from the public, open payment accounts for institutions and individuals, open distribution channels, etc. The competition in fundraising and lending from the superiority of commercial banks is getting tougher and tougher.

 

Particularly, PVFC is facing an inevitable prospect that the Vietnam National Oil and Gas Group (PetroVietnam) is leaving from non-core businesses. And, this policy to PVFC has repeatedly been confirmed. This is a big issue when an entity will divest its 78 percent of stakes from now to 201. This move will lead to a loss of customers, services and money sources.

 

Thus, restructuring is an option and PVFC’s leaders revealed their intention and decision to become a commercial bank. And, Western Bank is seen as a component for this restructuring process and finding out a plan is necessarily to be done.

 

Recently, the State Bank of Vietnam (SBV) is said to be building a circular to instruct the reorganisation of a credit institution, thus laying new legal foundation to accelerate restructuring process. The merger of a finance company with a bank has been placed out. Thus, PVFC’s merger with a bank is novel but legal.

 

When PVFC and Western Bank merge, a new bank will be formed. A new bank licence will be issued while Vietnam is trying to reduce financial institutions. However, in reality, this new entity will replace two old ones.

 

However, if a new bank is established, PetroVietnam’s divestiture will be mentioned. Currently, PetroVietnam is holding controlling stakes in PVFC and is required to divest. PetroVietnam is asking for retaining its stake at PVFC because this financial institution plays an important role in arranging capital for the group’s projects.

 

However, if a new bank was formed, the divestiture is another issue. This will be a new investment into a new bank rather than divesting or retaining interests in a subsidiary company. This toughness must be taken into consideration by both PetroVietnam and PVFC. Even, it is a big problem for a new bank to lose a strategic shareholder like PetroVietnam.