The National Bank maintains that it is not engaged in a process or negotiation surrounding the sale of its Cambodian subsidiary, Advanced Bank of Asia (ABA), which generates approximately 10% of the Quebec financial institution’s annual profits.
“Following the publication of articles in the media, and even if it is not the practice of the National Bank to comment on market rumors, the Bank declares that it is currently not not engaged in a process or negotiation for the sale of ABA Bank, and that it has not hired an advisor for this purpose. »
This public outing is prompted by a report from the Bloomberg agency affirming that the National Bank is studying different options, including the sale of ABA Bank, and that initial discussions have taken place with advisors surrounding a strategic review.
“From a purely strategic point of view, the bank should sell ABA,” said Scotia analyst Meny Grauman in a note sent to clients on Tuesday.
ABA Bank is part of the legacy of former CEO Louis Vachon. At the time, he wanted to replicate the organization’s “super regional bank” concept in other regions of the world, particularly in Africa and Cambodia.
If the initiative did not prove conclusive in Africa, it worked very well in Cambodia where ABA developed.
National Bank acquired its first shares in ABA 10 years ago. She subsequently gradually increased her participation. In total, the National Bank paid around 425 million in five years between 2014 and 2019 to become the sole shareholder of ABA.
“This acquisition was certainly a financial success, but by the bank’s own admission, it cannot be replicated and the moratorium on any significant new investment in emerging markets clearly signals this,” comments Meny Grauman.
“The market has never been comfortable with this exposure and even less so today, given the economic difficulties in Southeast Asia,” adds this expert.
“However, from a transactional point of view, I am not convinced that a transaction makes sense, at least not now. »
The press release published Tuesday by the National Bank mentions that ABA is a “success story, showing solid growth and superior returns”.
Focused on consumer and small business banking, the bank in Phnom Penh, Cambodia has indeed experienced rapid growth.
Over the past five years, the organization says ABA has more than quadrupled its loans and deposits. “We continue to be satisfied with the performance,” said the National Bank in its press release.
The opportunity to invest in ABA presented itself in 2014 when the Cambodian institution issued shares to finance its growth and, each time, it was the National Bank which bought the shares.
Cambodia had caught the eye of Louis Vachon because it contained strong potential for economic growth. The penetration rate of banking products was relatively low there.
Even as the Cambodian economy continues to adjust to declining external demand and slowing tourism recovery, the long-term outlook for this market is very attractive, says the Bank’s 2023 annual report. National.
“The fundamentals of the country are solid; the economy is showing strong growth, demographics are favorable and the population remains underbanked. These factors represent significant growth opportunities for ABA Bank in the future. »
Valuing an asset in Cambodia is not the same as evaluating a North American asset for all kinds of considerations. It is therefore perilous to place a value on ABA Bank today. Meny Grauman maintains, however, that a price of 2.7 billion Canadian dollars seems reasonable to him.
A sale of ABA Bank would pose a challenge to replacing revenues and profitability for the National Bank. ABA’s assets total more than $314 billion. This foreign bank generated revenues of 726 million in 2023 and profits of 343 million. The increase in profits in 2023 is, however, only the equivalent of an increase of 1% compared to 2022.