Restructuring to boost M&A in banking industry

Weak banks that are restructuring will be the target of mergers and acquisitions (M&A) deals in the near future as the Government is strongly promoting the restructuring of the country’s finance and banking industry.

 

News portal vnbusiness.vn quoted Yoshizawa Toshiki, board member at Orient Commercial Joint Stock Bank, as saying that M&A activities will increase sharply after the pandemic, of which M&A in finance and banking in Viet Nam will be better, .

Currently, the Vietnamese Government has policies such as equitising State-owned enterprises and banks, and restructuring weak, undercapitalised and substandard banks. This is an opportunity for foreign organisations to make investments. Japan’s medium-sized banks are also considering the financial market and M&A in Viet Nam, Toshiki said.

Warrick Cleine, chairman and CEO of KPMG in Viet Nam and Cambodia, quoted by vnbusiness.vn, also said M&A activities in the financial and banking sector slowed in the first ten months of 2022, but he expected the sector will be the target of M&A transactions from 2023.

It is positive that many foreign investors are interested in the sector. They have a certain confidence in the Vietnamese market and businesses, Warrick said, adding many CEOs are also considering M&A as an important way for them to change their business model more effectively.

A typical deal is that VPBank expects to sell 49 per cent of FE Credit shares to Japan’s Sumitomo Mitsui Banking Corporation (SMBC). At the same time, VPBank has increased the maximum foreign ownership ratio from 15 per cent to 17.6 per cent of charter capital. Though the time to complete the capital sale plan has not been disclosed, a representative of VPBank said it would be implemented between 2022 and 2023.

Besides the bank share purchase of foreign investors, M&A activities among domestic enterprises are forecast to boom in 2023 under the Government’s compulsory plan of transferring weak banks next year.

Though no name has been officially announced, with the recent moves of commercial banks, it can be seen that a number of deals have almost been decided, according to vnbusiness.vn. For example, Military Bank and Vietcombank might receive the compulsory transfer of Ocean Commercial Bank (OCB) and CBBank, respectively, while DongA Bank and GP Bank might be transferred to HDBank and VPBank, respectively.

The M&A form of weak banks is completely different from previously. Accordingly, weak banks will be merged with big banks under the parent-subsidiary model. The transferred weak banks will operate in the form of one-member limited liability banks where the parent bank is the owner of 100 per cent of the charter capital.

The subsidiary banks have legal entities that are independent of the parent banks, and do not carry out consolidation of financial statements with the parent banks. Besides, the subsidiary banks’ calculation of capital adequacy ratios, dividend policy, profit distribution and provision of funds are also independent from parent banks.

Tim Evans, CEO of HSBC Vietnam, quoted by vnbusiness.vn, said M&A deals in the Vietnamese banking industry would be better in the next few years, with drivers coming from both foreign investors and domestic commercial banks. The banking and finance sector in Viet Nam is emerging as a bright spot to attract the attention of large financial groups in the world while Vietnamese banks also have the need to increase capital and seek strategic partners to improve risk governance, operational efficiency, technology and digitalisation.

Financial analysts said the trend of digital transformation is increasingly strong in the economy and businesses are accelerating the speed of transformation. New business models are increasingly appearing to cause fiercer competition. The change will affect the M&A trend in the financial and banking markets. 

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