As Vietnam accelerates economic recovery amid COVID-19, IFC, LeapFrog Investments, and DEG - Deutsche Investitions- und Entwicklungsgesellschaft have invested $165 million in convertible Tier 2 bonds issued by Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank), a leading Vietnamese private retail and SME bank. While strengthening the bank's capital base, the funding will help increase lending to retail and small and medium enterprises (SMEs), including women-owned or -led ones.
While Vietnam's SMEs account for about 98 percent of all businesses, generate 40 percent of gross domestic product and 50 percent of employment, they have limited access to finance, hindering their growth. 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.
In this context, HDBank aims to expand its retail and SME portfolio, reaching more rural populations and informal household businesses as well as women entrepreneurs. In response, IFC and its Asset Management Company (AMC), LeapFrog Investments, and DEG—the German Development Finance Institution have subscribed $95 million, $60 million, and $10 million respectively to the US dollar-denominated five-year-plus-one-day convertible Tier 2 bonds. The investors will have the option to convert the bonds into common shares of HDBank over the mutually agreed time period. "The funds give us 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," said Pham Quoc Thanh, HDBank Chief Executive Officer. "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."
Over the last 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 raise 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.
"Our 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," said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia, and Lao PDR.
"LeapFrog is proud to support HDBank in their mission to reach emerging consumers and entrepreneurs across Vietnam and provide them with the financial resources to thrive," said Fernanda Lima, LeapFrog Investments Partner. "Our team at LeapFrog Investments will work closely with HDBank to leverage our customer experience accelerator program to improve the bank's digital tools, including banking apps, rewards programs and cash transfers which are fundamental to expanding access to fair and reasonable credit products for Vietnam's emerging consumers."
"DEG already entered into a strong cooperation with HDBank with its first investment in 2020. 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. We are proud to be part of the bank's successful development and look forward to accompanying and supporting HDBank further," said Jochen Steinbuch, DEG's Regional Manager for Greater Mekong.
This article was originally published by IFC.