Vietnam’s leading private retail and SME bank, Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank) has secured a US$165 million investment from three institutions – International Finance Corporation (IFC), LeapFrog Investments and Deutsche Investitions-und Entwicklungsgesellschaft (DEG) – through the issuance of convertible tier 2 bonds. In addition to strengthening the bank’s capital structure, the funding will help increase the bank’s lending to retail and SMEs, including those owned or led by women.
Of the total investment, announced on January 25, IFC subscribed for the largest share at US$95 million of the US dollar-denominated five-year plus one day convertible bonds. IFC’s asset management company LeapFrog Investments subscribed for US$60 million, while the German development financial institution DEG subscribed for US$10 million. The investors will have the option to convert the bonds into common shares of HDBank over the mutually-agreed time period.
With the fresh funding, HDBank aims to expand its retail and SME portfolio by reaching more rural population and informal household businesses as well as women entrepreneurs. While Vietnam’s SMEs account for about 98% of all businesses, generate 40% of the GDP and 50% of employment, IFC notes they have limited access to finance, thus hindering their growth potential. Further, given the economic challenges of a global pandemic over the past two years, smaller businesses in Vietnam need more working capital urgently to sustain operations and recover from Covid-19.
Commenting on the investment, HDBank chief executive officer Pham Quoc Thanh says the funds give the bank greater ability to offer thousands of additional loans to retail, rural and smaller businesses, including women entrepreneurs, who need finance to sustain through the Covid-19 crisis and beyond. “The investments will help HDBank improve its capital position after having met the Basel II capital safety and risk management standards required by the State Bank of Vietnam, and at the same time, realize its own growth strategy to become a leading SME and rural bank in the local market,” he adds.
Over the past few years, HDBank has been focusing on expanding lending to SMEs, especially those in rural areas – this segment currently accounts for about half of the bank’s portfolio. With one of the largest rural networks among Vietnamese banks, it aims to significantly grow the number of its rural customers – mainly small-scale agri-based and informal businesses.
The bond proceeds will also help HDBank enhance its environmental and social (E&S) risk management capacity by introducing IFC performance standards while improving the bank’s corporate governance policies in line with international best practices, including a commitment to not fund coal-related projects.
IFC country manager for Vietnam, Cambodia and Lao People’s Democratic Republic Kyle Kelhofer says IFC’s investment not only enables HDBank to strengthen its capital base to seize growth opportunities and further expand its core business of lending to SMEs but also sends a positive signal to boost international investor confidence in the resilience of Vietnam's financial sector and the country's continued growth prospects, despite the impacts of an ongoing global pandemic.
LeapFrog Investments partner Fernanda Lima says their team will work closely with HDBank to leverage their customer experience accelerator programme to improve the bank’s digital tools, including banking apps, rewards programmes and cash transfers, which are fundamental to expanding access to fair and reasonable credit products for Vietnam’s emerging consumers.
DEG’s regional manager for Greater Mekong Jochen Steinbuch notes that DEG already entered into a strong cooperation with HDBank with its first investment in 2020. He says DEG is leveraging its German and European business network by setting up a German desk at HDBank and is committing its business support services in the areas of environmental and social governance as well as digitalization.
