Banking sector to see more M&As in 2016

It is likely that many mergers and acquisitions (M&As) will be announced in April. The most likely targets are banks with overlapping ownerships , small or financially weak financial institutions, and those that have seen their bad debts ratio rising in the past years.

Recently, many banks have been authorised by the State Bank of Vietnam (SBV) to raise their registered capital. However, in case they cannot raise it by issuing more shares, they will have to do M&As.

Saigonbank, for example, was allowed to raise its capital from VND3.08 trillion ($138 million) to VND4.08 trillion ($183 million), but it has failed to carry out the increase for many years. The reason is that stock investors are not yet interested in bank stocks, especially those of a small bank, such as Saigonbank.

Meanwhile, according to the roadmap laid out in Circular 36/2014/TT-NHNN on limits and ratios to ensure the safe operation of financial institutions and branches of foreign banks, big shareholders like Vietcombank, which currently holds 4.37 per cent of Saigonbank, and Vietinbank, which currently holds about 8 per cent, will have to divest.

As of now, there are at least four other commercial banks that have the chartered capital roughly around the level of Saigonbank’s VND3 trillion ($134.5 million). Those are Kienlongbank, Viet Capital Bank, Nam A Bank, and VietBank. They will have to increase their capital in order to meet new international standards.

As SBV is growing more stentorian in cracking down on cross ownership in order to make the banking sector healthier, banks with overlapping shareholders may choose to merge. Vietcombank has a stake in the biggest number of banks, holding 7 per cent of Military Commercial Joint Stock Bank, 8.24 per cent of Eximbank, 5.07 per cent of Orient Commercial Bank, and 4.37 per cent of Saigonbank.

Pham Van Thinh, country managing partner at Deloitte Vietnam, said that 2016 would be an exciting year with many M&As in the banking sector. Foreign investors have expressed a lot of interest in domestic banks, according to Thinh, who said that Deloitte’s M&A consulting practice frequently receives questions from foreign investors on the restructuring of the banking sector, the addressing of the bad debt situation, and investment opportunities in domestic banks in general.

According to Thinh, the current number of banks and financial institutions in Vietnam is still higher than necessary, considering the scale of the economy. Moreover, many financial institutions run into troubles in their everyday operations.

“This means that we are going to see more M&As in the sector, even though it would be less than in the past years,” Thinh added that raising the foreign ownership limit is inevitable, especially when Vietnam is joining so many international trade pacts.