Local lenders struggle to match major M&A

Local lenders struggle to match major M&A - Illustration photo / freepik.com

Numerous local institutions are proactively endeavouring to expand their international presence in order to compete at an astonishing pace. In contrast to the burgeoning world-class engagement, Viet Capital Securities (VCSC) claimed that local bank mergers and acquisitions (M&As) have been comparatively idle in recent years.

Last April, HDBank officially withdrew from a potential M&A deal to acquire PGBank, a plan which HDBank had pursued for years, despite the State Bank of Vietnam’s (SBV) approval of the merger in principle in 2018.

A PGBank representative said that the lengthy merger phase had an adverse influence on its business activities, while Nguyen Huu Dang, vice chairman of HDBank’s Board of Directors elaborated, “HDBank places a strong emphasis on close-knit collaboration with Petrolimex – the major shareholder of PGBank. However, as Petrolimex intends to divest from the banking sector, HDBank no longer considers a merger with PGBank a feasible option.”

Prior to HDBank, VietinBank was the appropriate acquirer of PGBank, but the deal turned sour as the two parties were unable to create a unified consensus. HDBank, meanwhile, is currently deemed as one of the few lenders that is being examined to extend the foreign ownership ratio to 49 per cent in accordance with the EU-Vietnam Free Trade Agreement (EVFTA) pledge, stated Mirae Asset Securities.

VCSC assessed that it was no longer a thrilling phase for domestically-involved M&A accords in the banking industry since 2015, with a succession of mergers like MHB and BIDV, Mekongbank with MSB, Southernbank and Sacombank, and several more.

In addition, Vietcombank, VietinBank, and BIDV also helped to reorganise other weak lenders including CBBank, OceanBank, and GPBank. A regulated bank such as DongA Bank has its own set of rules.

With regards to this problem, VCSC states that the absence of large-scale banking M&A deals since Sacombank combined with Phuong Nam Commercial Joint Stock Bank in 2015 demonstrates that local banks are reluctant to engage in such agreements. “Difficulties in integrating IT, for example, is a considerable impediment,” the brokerage emphasised. “Any significant M&A transactions involving state-controlled commercial banks and privately-run banks would confront formidable IT constraints.”

On the other hand, experts believe zero-VND banks are not prime targets for foreign institutions under the EVFTA obligations due to their lack of financial soundness.

Since 2014, the SBV has approved foreign investors to purchase more than 30 per cent of a weak bank’s shares, but no purchase has yet taken place.

In 2019, Japan’s Maruhan Group revealed their ambition to participate in OceanBank’s restructuring strategy, while J.Trust, another major Japanese financial institution, was also interested in acquiring CBBank. Along with J.Trust, Clermont Group, a Singaporean financial firm, was also reportedly eager to participate in CBBank’s reorganisation. However, VCSC said that there have been no purchasers so far.

Along with the IT element, the conflict of human resource compatibility and asset quality are also listed by the VCSC as additional considerations. “The zero-VND banks of CB Bank, GP Bank, and Ocean Bank have not engaged in any M&A transactions since 2015. This already reaffirms our perspective,” the securities firm highlighted.

After a period of inactivity, M&As between domestic banks could re-emerge following the issuance of Directive No.01/CT-TTg on February 8, which commands the swift restructure of two troubled banks namely GPBank and OceanBank, which had been authorised by competent authorities.

During the 15th National Assembly’s second session, the government presented a plan to rebuild the economy before 2025, including objectives for the financial sector to soon have a zero-VND bank settlement scheme.

Maybank Kim Eng Securities noted that the Vietnamese government should concentrate on removing legislative impediments to expedite the last stage of the state-owned enterprises’ equitisation process, with the primary objective of boosting the state’s overall efficiency.

Tim Evans-CEO, HSBC Vietnam One of the key drivers of the banking sector’s development is the government’s concerted effort to reform the banking system. The State Bank of Vietnam suggested that M&A of loss-making and incompetent banks would be necessary to improve efficiency within the system. They have focused on transformation and consolidation to build a strong and sound banking and financial system to support business and economic growth sustainably and safely. As a result, M&A in the banking sector is expected to be active in the coming years as there are still many banks in Vietnam compared with other regional countries. Vietnam’s banking system is too small to support 97 banks, 52 representative offices of foreign banks plus 16 finance companies, as it stood in September 2021. The number should be scaled down to boost efficiency. Vietnamese banks also want to increase capital and look for strategic partners to help them enhance risk management, operation effectiveness, technology and digitalisation. It is believed that Vietnamese banks offer some of the most exciting growth stories in the region given a positive economic outlook, relatively low banking service penetration, and a growing middle class. Outside of the aforementioned large local banks space, M&A activities in recent years have focused more on the consumer space (both consumer finance companies and consumer-focused banks/digital banks) as the combination of strong growth and high profitability incentivises non-strategic interests, such as private equity funds, to participate.