SMBC pushes further into South East Asia with VPBank investment

Sumitomo Mitsui Financial Group, and Sumitomo Mitsui Banking Corporation announced an agreement with Vietnam Prosperity Bank (VPBank) to acquire a 15% equity stake in VPBank (valued at VND 35.9trn, equivalent to JPY 183.1bn) through a private placement, subject to regulatory approval. With this Investment, VPBank will become an equity method affiliate of SMFG and SMBC.

What difference one month makes

During investor presentations merely a month ago, management presented the relationship with VPBank still as a “business alliance”, which the two banks entered into last year.

This alliance was prominently featured under the heading “sophisticate [sic] business portfolio management focusing on asset and capital efficiency.”

We are therefore to assume that the equity investment is now considered more asset and capital efficient? The impact to Common Equity Tier 1 (CET1) ratio is a negative 19 basis points, and investment return objectives of a JPY 18bn contribution are expected to be realized within three years.

So let us turn to the rationale for the transaction as presented by SMBC…..

Strategic Rationale of the Investment

SMBC Group has been pursuing its Multi-Franchise Strategy to capture the growth of key emerging markets in Asia and views Vietnam as one of its important markets. This is manifested in the investment in VPBank SMBC Finance Company Limited (“FE Credit”) by SMBC Consumer Finance in October 2021, as well as SMBC entering a business partnership with VPBank in May 2022, which has yielded successful results in various fields.

VPBank is a major Vietnamese bank with a strong presence in the retail and SME sectors. In recent years, VPBank has been focusing on digitalizing its products and services. It now demonstrates top class growth and profitability among local private banks. After signing a business partnership agreement last year, SMBC and VPBank have been working on business collaborations in multiple fields and various synergies have already materialized, especially in referring Japanese customers to VPBank and providing VPBank’s products and services to them. By entering a capital partnership with VPBank through this investment, SMBC will further strengthen business collaborations which will enable SMBC to provide higher quality products and services to their customers growing their businesses in Vietnam.

Through the Investment, SMBC will leverage VPBank’s nationwide branch network and expand business collaborations in various fields, including retail and SME financial services, which will enable SMBC Group to further strengthen their growth strategy in Vietnam and ultimately contribute to the further development of Vietnam’s financial industry.

The Competition

As we had discussed in our Japan FinTech Outlook 2023, among the three Japanese mega banks, MUFG has made the earliest and most comprehensive push into South East Asia, with acquisitions & investments in Vietnam (Vietin Bank, 2012), Thailand (Krungsri, 2013), the Philippines (Security Bank, 2016), and Indonesia (Bank Danamon, 2017–2019). MUFG’s focus on South East Asia has been amplified by its withdrawal from the US retail banking market with its disposal of Union Bank to US Bank, and through a series of FinTech startup investments, as well as the creation of dedicated country funds (“Ganesha Fund” for India, “Garuda Fund” for Indonesia).

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