IFC, LeapFrog Investments, and DEG - Deutsche Investitions- und Entwicklungsgesellschaft have invested US$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.

A customer at an HDBank's branch in Hanoi. Photo: The Hanoi Times

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, noted the IFC in a statement.

Even though Vietnam’s SMEs account for about 98% of all businesses, generate 40% of gross domestic product and 50% 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 period.

Pham Quoc Thanh, HDBank Chief Executive Officer, said the funds give his 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 growth strategy to become a leading SME and rural bank in the local market.”

The raised bond 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.

According to Fernanda Lima, an official from LeapFrog Investments Partner, said his company will work closely with HDBank to leverage 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.

Jochen Steinbuch, DEG’s Regional Manager for Greater Mekong, said DEG has already entered into 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.