Bank M&A deal nears
Bank M&A deal nears
Many market observers believe that Sacombank will benefit less from its merger with Southern Bank.
Sacombank last week announced it would hold its annual general shareholders’ meeting scheduled in March. The event will include a vote on the proposed merger with Southern Bank this year.
The two parties are working to complete the merger plan which will be further detailed at the meeting and will be submitted to the State Bank for approval
The banks issued a joint statement that confidently expressed their belief the merger would be completed before year-end if approved.
However, Sacombank dwarfs Southern Bank in terms of charter capital, assets and operational quality.
Sacombank’s charter capital totaled VND12.4 trillion ($590.4 million) as of the 2013 fiscal year, three times Southern Bank’s charter capital of VND4 trillion ($190.4 million) recorded at the end of the third quarter of last year.
In term of profit, in 2013, Sacombank posted consolidated pre-tax profits of VND2.96 trillion ($191 million), (up 116.4 per cent year-on-year) while Southern Bank only achieved a pre-tax profit of VND269 billion, (down 9.7 per cent year-on-year) in the first three quarters of 2013.
Southern Bank’s return on equity (ROE) was just 0.5 per cent in 2013, down from 12.9 per cent in 2010, while Sacombank boasted an ROE of 15 per cent for several years.
“In the short-term, the merger will put a greater bad debt burden on Sacombank, and Southern Bank’s deteriorating performance may negatively affect Sacombank,” stated analysts at Viet Capital Securities Company (VCSC).
Meanwhile, the Ho Chi Minh Securities Company in its newsletter published on March 9 also raised several concerns about the asset quality of Southern Bank.
Firstly, while short term loans declined by 6 per cent year-to-date in the third quarter, medium and long term loans rose by 26.5 per cent over the same period.
Secondly, accrued unpaid interest and fees accelerated by 57 per cent to VND10 trillion ($477 million), equal to 23 per cent of the loan portfolio, equivalent to 182 per cent of their interest income in the first three quarters.
This suggests that some short-term loans were rescheduled as medium and long-term loans and that some borrowers were struggling to meet due interest payments, according to HSC.
“We would still need to be convinced how Sacombank shareholders might benefit from the deal,” said the company in its newsletter.
Another theory behind the mismatched merger may be the advantage it brings to banking tycoon Tram Be who along with his family is bogged down in cross-ownership headaches due to his share-holdings in both banks.
Be was previously deputy chairman of Southern Bank’s board of directors, and now holds 8.36 per cent of the lender’s chartered capital. His son Tram Trong Ngan, currently deputy chairman of the board, owns 4.42 per cent of shares. His daughter Tram Thuyet Kieu, the bank’s deputy general director, possesses 7.36 per cent, and her husband Le Trong Tri has 0.67 per cent. Together the clan holds a 20.81 per cent stake which breaks the 20 per cent cap on share ownership.
The Trams also own a 6.78 per cent share in Sacombank
Vietnamese laws currently stipulate that one individual shareholder must not hold more than five per cent of the chartered capital of a credit institution, and that the total shares held by one shareholder and relatives must not be higher than 20 per cent of the capital.
When Southern Bank and Sacombank merge into a new Sacombank, the Trams’ ownership ratios would decrease, thus no longer violating the laws. The new ratios are still unknown as both sides have yet to finalise the share swap ratio.
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