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Banking & Finance

Moody's: HDBank's planned IPO credit positive

Released at: 20:49, 04/12/2017

Moody's: HDBank's planned IPO credit positive

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Credit ratings agency believes IPO will strengthen capitalization and loss-absorbing buffers amid rapid credit growth.

by Duy Anh

The Ho Chi Minh City Development Bank (HDBank)’s upcoming $300 million initial public offering (IPO) will strengthen its capitalization and loss-absorbing buffers amid rapid credit growth and prompt more banks to follow suit, Moody’s Investors Service has said.

Similar to other Vietnamese banks, Moody’s believes that rapid loan growth and dividend payments to shareholders are exerting pressure on HDBank’s capital buffers.

The bank’s large dividend payout in 2016 against strong loan growth of 45 per cent, well beyond the industry average of 26 per cent, led to an approximately one percentage-point drop in its tier 1 ratio to 10.8 per cent at the end of 2016 from 11.8 per cent a year earlier. “This capital ratio is modest in the context of the bank’s asset quality challenges and modest loan-loss reserves,” Moody’s noted.

Using HD Bank’s capital position as at December 31, 2016, Moody’s estimates that the capital increase will raise its tier 1 ratio by nearly four percentage points to 14.8 per cent, thereby becoming one of the best capitalized banks among the Vietnamese banks the credit ratings agency rates. The additional capital will support the bank’s solvency amid continued balance sheet expansion.

HDBank, whose Vice Chairwoman is Ms. Nguyen Thi Phuong Thao, the billionaire founder and Chairwoman of Vietjet Air, Vietnam’s largest private airline, said last week that it is holding an IPO to foreign investors for up to 20 per cent of the company.

With each foreign investor being offered a less than 5 per cent stake through the IPO, HDBank’s Deputy CEO Mr. Le Thanh Trung told local media last week that the share sale would involve a mix of new and old shares, generating $150 million of new equity for the bank. Following the transaction, new shareholders are estimated to own 21.5 per cent of the bank.

With a plan to list on the Ho Chi Minh Stock Exchange (HoSE) in early 2018, HDBank has been focusing on individuals and small and medium-sized enterprises (SMEs) to help grow its profits by an average of 35 per cent a year in the past five years, while profits are expected to grow about 25 per cent annually in the coming years, Mr. Trung said.

HDBank currently has 4.5 million individual customers and around 25,000 SME clients, Mr. Trung said, adding that the bank has access to a pool of 20 million people that are clients from Vietjet Air and HD Saison, its customer finance joint venture with Japan’s Credit Saison Co.

The bank expects pre-tax profit of VND2.4 trillion ($105.66 million) this year, an increase of nearly 110 per cent against 2016.

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