Banks merge as State Bank takes bold action

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Ficombank, TinNghiaBank and Saigon Commercial Bank (SCB) last week inked a deal which will see them merge over the next three years. The hope is that the merger will create a new, stronger financial institution with a more extensive network of branches.

The three lenders recently faced liquidity problems caused by the excess use of short-term funding sources for medium and long-term loans. Therefore, the central bank intervened to provide liquidity support for them via BIDV.

“We assigned BIDV to ensure sufficient liquidity for these cash-strapped banks before and after the merger,” Tran Minh Tuan, deputy governor of the central bank. “The merger will not affect the normal operations of the three banks and the whole banking system. The legitimate interests of depositors will be protected,” Tuan said.

Explaining why BIDV had been chosen, Tuan said this state-owned bank was strong in corporate governance and banking services, so “it would be providing comprehensive strategic support for the three banks rather than participating in day-to-day business operations of the merged bank”.
BIDV’s chairman Tran Bac Ha revealed that his bank had injected over VND2.4 trillion ($120 million) into the three banks to help improve their liquidity, with VND30 trillion ($1.5 billion) in assets used as a guarantee by those banks.

“After the merger is complete, BIDV will continue backing the new bank in terms of both liquidity and corporate governance,” he said.  Tuan of the central bank said the lenders would submit the merger project and the charter of the merged bank to the central bank before December 25. The three banks’ shareholders will together join a general meeting by mid-December. The new bank is expected to debut on January 1, 2012.

The merged bank will have new name and a total chartered capital of more than VN10 trillion ($475 million), while total assets will be VND150 trillion ($7.1 billion) with over 200 branches and transaction offices.

The merger has captured the attention of local and foreign financial institutions.  In a press release following the merger announcement, global rating agency Fitch Ratings viewed the merger as a positive step towards strengthening Vietnam’s banking system in the context of Vietnam’s recently announced road map to restructure commercial banks.

VietCapital Securities commented in a note to investors that having BIDV as its representative for state ownership at the newly-merged bank, the central bank might  want to convert some of its deposits at these banks into equity, thus putting the newly-merged bank under closer supervision.

“We, however, believe that it will definitely take quite some time for the newly-merged bank to run completely smoothly because of the difference in information technology core-platform at these three banks and the [difficulties in] integration of human resources and branch networks,” it said.

In another development, Australia’s Macquarie Group signed a strategic cooperation agreement with the three banks to advise them on implementing their new business strategy and finding strategic shareholders.