Shinhan Vietnam eyes 'quantum leap' through M&As

This is the fifth in a series highlighting Korean banks’ operations in Southeast Asian countries. _ ED.

By Nam Hyun-woo

In making advances into Southeast Asia, Shinhan Bank has built a reputation as a “pioneer,” as its local body in Vietnam is one of the first-generation foreign banks in the country.

Shinhan first opened its office in Ho Chi Minh City in 1993, just 11 years after the bank’s establishment in Korea.

The move seemed to be an alternative way for survival back then since the young bank was lagging behind its rivals in domestic competition and had to seek alternative opportunities in Vietnam where many Korean companies were advancing after the two countries established formal diplomatic relations in 1992.

After more than two decades, the choice turned out to be a significant move for the future.

The office has become the largest foreign bank in Vietnam by the number of branches, 18, and assets amounting to $2.5 billion as of the end of May. According to the Asian Banker, a market analysis firm, Shinhan Vietnam showed the highest return on assets last year among banks operating in Vietnam.

Though the bank has been enjoying a robust presence in Vietnam for more than two decades, Shinhan Bank Vietnam General Director Shin Dong-min says it is time for the local body to seek “a quantum leap” through mergers and acquisitions (M&As) with financial firms in the country.

“Given the nature of the banking business, we have to admit that there is a limit in organic growth,” Shin said in an interview with The Korea Times. “For a quantum leap in our businesses, in-organic growth such as M&As will be essential.”

The remark came after Shinhan Bank Vietnam’s successful achievement last year. According to the bank’s earnings, its net profit reached $47 million in 2016, up 12 percent from the previous year. Given continuous growth of its assets, the bank’s net profit is expected to increase further this year.

Despite sound earnings, Shin said Shinhan Vietnam should not be complacent with its current market status since competition is getting fierce in the local market amid the rapid economic development of the country.

Vietnam has been one of the fastest growing economies in Asia. Its gross domestic product (GDP) grew 6.7 percent in 2015, with the average growth rate from 2000 to 2014 standing at 6.5 percent.

Shin expects long-term economic growth given that some 60 percent of the country’s population is aged between 20 and 59, which he described as “working age.” Along with rich labor resources, their heightened consumerism and willingness to get loans will help expansion in the individual loan market.

“From 2011 to 2015, the volume of loans extended by banks in Vietnam surged by 21.6 percent every year and it will grow 15.4 percent every year from 2016 to 2020,” Shin said. “With robust growth expected in the banking industry here, local banks and foreign banks are in fierce competition to raise their market share.”

The strategy Shinhan Vietnam opted to take for a step ahead of its rivals was an M&A deal.

In April, Shinhan Vietnam acquired ANZ Bank’s retail business in the country. The Australian bank made its entrance in Vietnam along with Shinhan in 1993 and has been standing as a foreign titan there, serving 125,000 clients.

Through the acquisition, Shinhan Vietnam expects noticeable growth in retail deposits and in its credit card business.

Shin said the takeover will be extra horsepower for Shinhan Vietnam to compete with not only foreign banks in Vietnam but also with homegrown banks.

“ANZ’s strengths lie in its management of retail, credit loans, and property clients,” he said. “The takeover of the credit card sector could be especially meaningful, as it would allow Shinhan to be No. 6 in the market and secure the foothold to take over the No. 3 spot within two to three years.”

“For growth in the future, M&As are a must-do. The acquisition of the ANZ retail sector is the very beginning of this process,” Shin said.

This is in line with Shinhan Financial Group Chairman Cho Yong-byoung’s initiative to nurture Shinhan Bank into “a leading bank in Asia” through M&As.

A Shinhan Bank official said the bank is eyeing multiple M&A targets in North America and Southeast Asia.

From this month, Shinhan Vietnam will also do custody services, which have not been the domain of a Korean bank in Vietnam.

Despite Korea being one of the largest foreign investors in Vietnam, Korean investors had to rely on foreign banks with custody licenses to have their stocks and bonds managed.

“The services had been available only through global custodian banks such as HSBC or Citibank, but Shinhan Vietnam became another option for investors after earning a license in May,” Shin said. “This means Shinhan has set up a platform to become a rival of global banks.”

Korea Times intern Suh Chung-hwa contributed to this article.