Mitsubishi UFJ Financial Group Inc. (8306) agreed to buy a 20 percent stake in VietinBank for 15.5 trillion dong ($743 million), the biggest Japanese investment in a Vietnamese bank.
The lender’s Bank of Tokyo-Mitsubishi UFJ Ltd. unit will purchase the stake from the Vietnamese government by the end of 2013, the companies said in a joint statement in Hanoi today.
Mitsubishi UFJ, Japan’s biggest bank, joins Mizuho Financial Group Inc. (8411) and Sumitomo Mitsui Financial Group Inc. in investing in Vietnam as a shrinking home market spurs them to expand abroad. While Vietnam has attracted Japanese companies from Canon Inc. (7751) to Kao Corp. (4452), the country is grappling with bad loans and the slowest economic growth since 1999.
“This deal will help Mitsubishi UFJ expand lending in Vietnam and contribute to profit in the medium term,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “Vietnam will be a key market for Japan in the next few years. Japanese megabanks and manufacturers have been looking to diversify away from China.”
Vietnam Joint Stock Commercial Bank for Industry and Trade, VietinBank’s full name, is the nation’s second-biggest publicly traded lender, with a market value of 54 trillion dong.
Shares of Hanoi-based VietinBank (CTG) were unchanged at 20,300 at the close in Ho Chi Minh City trading. Mitsubishi UFJ advanced 0.5 percent to 451 yen on the Tokyo Stock Exchange.
Bank of Tokyo-Mitsubishi UFJ seeks to expand retail lending and international banking transactions in Vietnam with the deal, President Nobuyuki Hirano said at a briefing in Hanoi today.
VietinBank will improve its corporate governance and risk management through the partnership, Chairman Pham Huy Hung said in the statement. Mitsubishi UFJ will send two people to the board, said Takami Onodera, the Japanese bank’s CEO for Asia.
The deal, which is subject to regulatory approval, will reduce the Vietnamese government’s stake to 64 percent, Hung said. It currently holds 80 percent of VietinBank, according to data compiled by Bloomberg.
Japanese banks are expanding abroad as falling interest rates stemming from more than a decade of deflation squeeze loan profitability at home. With households hoarding cash, deposits at Japan’s banks exceeded loans by 171 trillion yen last month, close to a record 174.1 trillion yen in June, central bank figures show.
Mizuho, Japan’s third-largest bank by market value, last year agreed to buy 15 percent of state-owned Joint-Stock Commercial Bank for Foreign Trade of Vietnam, known as Vietcombank, for $560 million. Larger rival Sumitomo Mitsui bought 15 percent of Eximbank, or Vietnam Export-Import Commercial Joint Stock Bank, for $225 million in 2007.
To help fund overseas lending, Sumitomo Mitsui seeks to issue as much as $4.5 billion in dollar-denominated bonds next year, matching 2012’s amount as the most in its 11-year history, President Koichi Miyata said in a Dec. 19 interview. Miyata said he is interested in acquisitions in Southeast Asia.
Kao, Japan’s largest maker of bath and shower products, said last month that it wants to at least double the size of its Vietnamese business to ramp up overseas growth as the domestic market shrinks.
Still, Vietnam’s banks are saddled with the highest non- performing loans in Southeast Asia, crimping economic growth. The economy expanded 5.03 percent this year, the slowest pace in 13 years as a slump in bank lending damped domestic demand.
Vietnam’s central bank said today it will intensify the monitoring of banks to reduce bad debt and set a timeline for lenders that own stakes in each other to reduce them. The risk of some Vietnamese banks failing to meet their liabilities is receding from a year ago, Nguyen Huu Nghia, the central bank’s chief inspector, said at a briefing in Hanoi today.
The country’s soured loans won’t impede Tokyo-based Mitsubishi UFJ’s expansion, said Yoshinobu Yamada, an analyst at Deutsche Bank AG.
“Given Mitsubishi UFJ’s risk management capacity, Vietnam’s recent bad-loan issue won’t be a stumbling block for the bank to expand lending operations in the country after the VietinBank deal,” Yamada said.
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