Buying Into Vietnam’s Banks

A bank can have more customers, a larger loan portfolio and rising profits. Those figures still leave a buyer with a difficult question: how much are the shares worth?

The answer depends partly on what the bank can earn in the future and partly on how much risk sits behind the earnings it reports today.

For a foreign investor entering Vietnam, there is another consideration. An investment can deepen customer relationships and support business opportunities that would take time to develop independently.

That combination of financial value and strategic opportunity helps explain why an attractive banking partnership can still produce difficult negotiations over price.

Start with what is known

On 25 September, reports citing people familiar with the discussions said Japan’s Sumitomo Mitsui Banking Corporation, or SMBC, was considering increasing its VPBank holding from 15% to approximately 20%. The report said the parties differed over valuation and that both banks declined to comment.

Those were reported negotiations. They should not be treated as a signed agreement or a completed increase in ownership.

The existing relationship has a documented foundation. In March 2023, SMBC announced an agreement to acquire 15% of VPBank through a private placement. In explaining that investment, it highlighted customer referrals, VPBank’s branch network and cooperation in retail and small-business financial services.

That provides a useful starting point for understanding the investment case. A foreign bank can be buying participation in a local banking business and opportunities to serve customers across both organisations.

Customer access has value, but needs to produce earnings

Imagine a Japanese manufacturer establishing operations in Vietnam. It may need local payments, payroll services, working-capital financing and support for its suppliers.

An established relationship between its Japanese bank and a Vietnamese partner could make it easier to coordinate those services, subject to each bank’s capabilities and permissions.

This is a hypothetical illustration, rather than a description of a particular customer arrangement.

For investors, the important question is what that cooperation produces. Customer introductions are useful if they lead to suitable business at an acceptable return. They are less valuable if winning the business requires pricing that leaves little room for costs and risk.

The buyer should therefore test the commercial opportunity: which customers could be served, which products they need and whether the expected income justifies the resources required.

A strategic relationship is an investment advantage only when the economics support it.

Understand the bank’s book value

One common starting point for bank valuation is the price-to-book ratio.

In a simplified calculation, book equity is the accounting value of assets minus liabilities. Price-to-book compares the value investors place on the shares with the corresponding book equity.

A ratio of 1.5 times book means investors are paying 1.5 units for each unit of reported book equity. It does not mean they are buying the bank’s assets at 1.5 times their value while ignoring its liabilities.

The ratio is useful, but it cannot settle the investment decision by itself. Buyers need to assess the reliability of the balance sheet and the earnings that equity can support.

Loan quality can change the calculation

A bank’s reported equity is meaningful only alongside an assessment of its assets.

Loans are claims on future repayments. If borrowers cannot repay as expected, the bank may need to recognise additional losses, reducing earnings and potentially equity.

Return to the fictional bank. Suppose a further VND10 trillion loss reduces its equity from VND100 trillion to VND90 trillion, with all other effects ignored. At the same VND150 trillion purchase valuation, the price-to-book ratio rises from 1.5 to approximately 1.67 times.

The buyer has not increased its offer. The equity supporting that offer has become smaller.

This is why due diligence examines overdue payments, borrower concentration, collateral, restructured loans and the assumptions used to estimate losses.

These are normal questions for assessing any bank. They do not establish that VPBank has undisclosed losses or unreliable accounts.

Growth can make a risk ratio look better

Investors should examine the amounts behind percentages.

Imagine another fictional bank with VND3 trillion of non-performing loans within a VND100 trillion loan portfolio. Its non-performing-loan ratio is 3%.

If the portfolio grows to VND150 trillion while non-performing loans stay at VND3 trillion, the ratio falls to 2%.

The ratio has improved, but the existing problem loans have not disappeared. New lending may also need time before its repayment performance becomes clear.

Useful follow-up questions are whether overdue balances are being recovered, written off or restructured, and how recently issued loans are performing as they mature.

A falling ratio and an improving portfolio can occur together. The calculation alone does not prove that they have.

Deposits are funding, not free money

A bank’s deposit relationships can be commercially valuable. They can support lending and provide opportunities to offer payment services and other products.

Deposits are also liabilities owed to customers. Buying shares in a bank does not give the shareholder a pot of customer money to spend freely.

An investor should examine how stable the funding is, how much it costs and how concentrated it is among large customers. A bank relying heavily on a few depositors faces different funding questions from one with a broad customer base.

Consider a fictional bank earning more interest on its loans while also having to pay substantially more to retain deposits. Its lending activity may be growing without an equivalent improvement in the income left after funding costs.

The relationship between asset income and funding costs therefore deserves attention alongside loan growth.

New capital and a share purchase have different effects

The structure of an investment matters to both buyer and bank.

When a bank issues new shares, it receives the subscription proceeds before relevant costs. That can add financial resources, although the effect on regulatory capital depends on the applicable requirements.

When an investor buys existing shares from another shareholder, the seller receives the payment. The bank does not automatically receive new capital.

Both routes can increase the buyer’s holding. They produce different consequences for the bank’s funding and share count.

Investors should also ask how much further capital the bank may need as it grows. Rapid expansion can require additional resources, so projected earnings should be assessed alongside the capital needed to support them.

Ownership rights and approvals matter

A foreign investment in a Vietnamese bank needs to be assessed under the rules and approvals applicable to that particular institution and transaction.

The aggregate foreign ownership allowance, the permissible holding of an individual investor and the rights attached to that holding are separate questions. An exception or approval affecting one bank should not be assumed to apply to every bank.

A minority holding also does not, by itself, establish unrestricted management authority. Board participation, information access and any protective rights require examination of the relevant arrangements.

For an investor outside Vietnam, currency matters too. Earnings and dividends received in dong can translate into different amounts in the investor’s home currency as exchange rates move. Hedging, where used, has its own costs and limitations.

These details can materially affect the return even when the underlying bank performs as expected.

What would justify paying more?

A convincing case for a higher price would connect the strategic opportunity to measurable financial outcomes.

That could mean durable customer relationships, recurring fee income, disciplined lending, reliable funding and earnings that remain attractive after allowing for the capital required.

Investors should then compare those benefits with the acquisition price and consider what happens if growth is slower, funding becomes more expensive or credit losses rise.

The reported SMBC–VPBank discussions illustrate why bank M&A involves more than enthusiasm about an economy’s prospects. A buyer must assess the particular institution, the rights being acquired and the price demanded for its future earnings.

Vietnam’s banking opportunities deserve that level of detail. The strongest investment case explains how customer demand becomes sustainable earnings — and how much an investor can reasonably pay for them.