Bank M&As encouraged by SBV, discouraged by experts
Bank M&As encouraged by SBV, discouraged by experts
While the State Bank of Vietnam believes that the merger of small and weak banks into larger and stronger ones will help speed up the bank restructuring process, experts don’t think this is a perfect solution.
Local newspapers have quoted an official of the State Bank as saying that, instead of buying weak banks’ shares to recover them, the watchdog agency now tends to encourage small banks to merge into big ones. The official said the new solution can help speed up the banking system restructuring process because it allows for savings on costs and time.
As the central bank has “turned on the green light”, commercial banks have been trying to find suitable matches. PG Bank plans to merge into VietinBank, and Southern Bank into Sacombank, while Maritime Bank is considering taking over Mekong Bank. Vietcombank, one of the largest Vietnamese banks, is also considering taking on a small bank, but the name of the bank remains a secret.
Meanwhile, economists, remaining skeptical about the effects of the merger and acquisition (M&A) agreements on the bank restructuring process, have commented that the M&A deals look more like rescue missions than sound business deals.
What they mean is that, in the deals, big banks are serving more as the rescue team in charge keeping the small banks afloat, while not receiving any benefits in return.
Regarding the Southern Bank–Sacombank M&A deal, an analyst said there is no need for Sacombank to “take on” Southern Bank, a small and weak bank with a non-performing ratio of over 4 percent, the majority of which are irrecoverable.
The analyst thinks that the central bank wants to see banks merge into each other to cut down on the number of weak banks and reduce the degree of circular ownership, a big problem of the banking system. If so, the liquidity problems and bad debt settlement would be sped up.
If everything goes smoothly, the number of Vietnamese banks will be halved by 2015, from 45 to 20.
However, the analyst commented that the lowering of the number of banks is not enough to restructure and strengthen banks.
Yun Hang Jin, from Korea Investment & Securities, noted that after an M&A, the bad debt of the new bank would be worse, as it would now equal the total bad debts of the two banks. Therefore, one cannot say that an M&A would help improve the “health” of the banks or help them escape from liquidity problems.
Dau Tu newspaper has quoted Dr Nguyen Duc Thanh, Director of VEPR, an economics research center, as saying that the takeover of the state owned banks over small banks may weaken the competitiveness of the whole banking system.
Thanh explained that if the big banks have more power, they will have greater influence in the policy making process, which would allow them to control the market.
He noted that the State Bank has been trying to save weak banks by encouraging M&A deals instead of bringing the weak banks to bankruptcy, because bankruptcies of banks may lead to immeasurable consequences to the financial market and society.
vietnamnet
