Acquirers of weak banks get incentive policies

Acquirers of weak banks get incentive policies

The State Bank of Vietnam (SBV) completed the compulsory transfer of four vulnerable banks, CB, Oceanbank, DongA Bank and GPBank to Vietcombank, MB, HDBank, and VPBank, respectively.

The State Bank of Vietnam (SBV) completed the compulsory transfer of four weak banks CB, Oceanbank, DongA Bank and GPBank to Vietcombank, MB, HDBank, and VPBank, respectively. Photo vneconomy.vn

Banks that acquire weak banks will enjoy various preferential policies, such as refinancing loans with preferential interest rates and a reduction of required reserve ratios.  

The State Bank of Vietnam (SBV) completed the compulsory transfer of four vulnerable banks, CB, Oceanbank, DongA Bank and GPBank to Vietcombank, MB, HDBank, and VPBank, respectively.

According to the amended Law on Credit Institutions, acquirers Vietcombank, MB, HDBank and VPBank will enjoy many preferential mechanisms, including a 50 per cent reduction in required reserve ratios, getting the SBV’s refinancing loans with preferential interest rates, and an exemption from consolidating financial statements with transferred banks.

In addition, the acquirers will enjoy many incentives in terms of capital sources and credit quotas to expand their asset scale and outstanding debts.

According to analysts of the Việt Dragon Securities Company (VDSC), without needing to consolidate financial statements with transferred banks, the acquirers will limit the negative impact on their financial statements, safety ratios and other regulatory limits.

Meanwhile, getting the SBV’s refinancing loans with preferential interest rates will help the acquirers maintain liquidity without having to bear higher capital costs.

Regarding the incentive of a 50 per cent reduction in the required reserve ratio, VDSC’s analysts believe this will help the acquirers increase flexibility in capital management by increasing the amount of available capital for lending and investment, which will accelerate the growth rate of total assets and improve profitability if they can take advantage of the new capital source to invest in high-yielding assets.

The Law on Credit Institutions also states that the acquirers will not be limited in the rate of purchasing, holding and investing in government bonds and government-guaranteed bonds, which can help the acquirers increase their ability to grow total assets when they can quickly allocate raised capital to liquid assets, in addition to the interbank channel, within a certain period of time.

The acquirers are also allowed to issue long-term bonds to deposit insurance organisations according to the SBV’s decision, which will help increase long-term capital with preferential capital costs, according to VDSC’s analysts.

As the acquirers are permitted to sell and issue shares of transferred banks to foreign investors in accordance with the compulsory transfer plans, VDSC believes that this regulation will create motivation for the acquirers to resolutely restructure credit institutions successfully.

Chairman of the Board of Directors of Vietcombank Nguyễn Thanh Tùng also said that the compulsory transfer of a weak bank was unprecedented and fraught with challenges. However, alongside the responsibility of revitalising CB’s operations, Vietcombank sees this as an opportunity to foster new business initiatives.      

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