In 2012, Prime Minister Nguyen Tan Dung green-lighted the Credit Institutions Restructuring Plan from 2011-2015 which detailed the mandatory reform of nine underperforming joint stock commercial banks with thorough instructions for each case. The State Bank of Vietnam (SBV) also required the banks to be more innovative in their financial plans, operations, and governance.

“There is a great deal of work going into improving the financial conditions of these banks, as well as settling bad debts through M&A with other financial institutions. This route is open to these banks, should they choose, and we will provide appropriate support,” SBV Deputy Governor Dang Thanh Binh told VIR.

A recent report by the Ministry of Industry and Trade (MoIT) on the domestic financial and monetary situation in the first half of this year forecasted that the second half of this year would be vital to the restructuring process and settlement of bad debts.

“As the world economy recovers and banking and finance markets grow stronger, foreign investors will show greater interest in M&A with Vietnamese banks,” said the report.

The SBV planned to permit foreign companies to be more involved in Vietnam’s banking sector with a draft decree increasing the ownership limit in a Vietnamese credit institution.

The draft decree, if approved, will allow foreign ownership in weak banks to rise to more than 30 per cent, pending the prime minister’s approval, and help decrease the red tape in the process of weak institutions selling stakes to foreign entities.

“These changes help local credit institutions seek out foreign capital and expertise and hasten restructuring, which up to now has been painstakingly slow,” said Hao of VietCapital Securities.

Bui Minh Long, a researcher at financial services firm StoxPlus, said the government set precedents to allow foreign investors to hold controlling stakes in joint stock banks.

“Small banks with strategic capabilities in non-traditional credit services such as consumer finance, cards, or payment systems will be looked at closely by foreign institutions from Japan, Australia, and Canada which have yet to make a strong entrance into Vietnam,” added Long.

According to a recent M&A report from StoxPlus, 15 of the 39 joint stock banks have strategic partners in the same sector, and three are currently in the process of seeking a foreign strategic partner. This is a clear sign that M&A would be very active in the near future.

In the past, M&As in Vietnam’s banking sector saw foreign financial groups taking minimal equity positions. In contrast, 2012 was very active with fierce acquisitions involving Sacombank and Southern Bank and two major strategic investments, such as DOJI into Tien Phong Bank and Viettel into MB Bank. Also, in a bold move Thien Thanh Corp acquired Trust Bank, Vietcombank sold a 15 per cent stake to Mizuho, and in the most high-value M&A deal in Vietnam yet, the Bank of Tokyo Mitsubishi UFJ Ltd. (BTMU) made a capital injection into Vietinbank.

Hao did warn, however, that a major M&A challenge would be recapitalisation of smaller banks as they might damage the equity base of the acquiring firm. “Additionally, many small banks are inefficient, financially weak, and have hidden non-performing loans. Larger local banks may be hesitant to involve themselves with these institutions unless directly ordered to do so by the SBV,” he said.

Source: VIR