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Banking sector set for wave of M&A

Update: January, 21/2012 - 08:35

HCM CITY — The banking sector will see big changes in the first quarter, with focus on mergers and acquisitions, the central bank chief has said.

Nguyen Van Binh, governor of the State Bank of Viet Nam (SBV), said that after Tet (Lunar New Year) there would be five to eight lenders involved in M&A similar to the recent merger between the First Commercial Joint Stock Bank, Viet Nam Tin Nghia Commercial Joint Stock Bank, and Sai Gon Commercial Joint Stock Bank (SCB).

On December 6 the three became the country's first banks to merge, forming one with a charter capital of VND10.58 trillion (US$508.166 million). The new bank began operations on January 1.

Some banks would opt for mergers while others were likely to be acquired by others, he told Dau Tu (Investment) newspaper.

Another SBV official said the central bank's decision to boost M&A was made immediately after many banks took recourse to breaching its deposit interest rate cap and tension in the inter-bank market.

Many banks were unable to repay their debts to bigger banks like the VCB and the BIDV, making the latter wary of lending on the inter-bank market, he said.

Though the SBV pumped more funds through open financial market, not all banks could get access to the money, worsening the difficulties for small banks, causing a vicious cycle of further interest rate breaches.

Mergers are expected to make smaller banks financially stronger.

Binh said the central bank and several banks were actively preparing for the M&A to ensure it would not create chaos in the banking market.

Nguyen Tri Hieu, an senior economist, said with many lenders looking for the right partner for mergers, the number of banks could be cut by a third. By the end of last year there were 42 banks in Viet Nam, including five large, State-owned ones.

The SBV announced plans to restructure the banking system last October. It will complete reviewing, classifying, and reorganising banks by the end of March.

There are at least eight small lenders who are weak, and the restructuring would have to take care of them, and not allow them to collapse. One of the stated goals of the banking reform is to have 10 to 15 strong banks.

Louis Taylor, general director of Standard Chartered Bank, told Dau Tu newspaper that while the number of banks would reduce following the restructure, the country would end up with more strong banks.

Speaking about monetary policies for 2012, Binh said the central bank would be consistent in pursuing a tight money policy with loans to non-production sectors remaining limited.

However, credit institutions would be allowed to restructure property-related debts and maintain kept them at an optimum level, a move expected to help both the banks and developers.

Liquidity issues

Tightened monetary policies of the central bank, alongside the recently difficult economic conditions and increased bad debts, have caused many domestic commercial banks to lower their credit growth rates for this year.

Nguyen Thi Nga, chairwoman of the SeABank's Board of Directors ,told Dau tu newspaper that in the past few years, her bank's bad debts had been restrained to under 1 per cent. However, the figure rose by 2.8 per cent last year.

She asserted that SeABank was now planning to focus on retrieving doubtful debts, not credit growth, adding that the central bank should soon have measures to resolve the liquidity-related problems at some banks to prevent them from spreading to the entire sector.

Most commercial banks were now waiting for pending credit growth rates allocated by the SBV based on their health and performance last year.

Accordingly, institutions would be classified into four groups, with well-performing lenders classed in the A group and weaker lenders in the D group.

The State Bank asked institutions to set their own quarterly targets while the overall amount they can lend will be designated by the State Bank.

Nguyen Thi An Binh, deputy general director of Military Bank, said that her bank was planning to set up its own credit growth rate at 15 per cent this year, much lower than that of 20 per cent last year, revealing that the rate of 15 per cent would be applied for the bank's branches which have low uncollected debts only, while those having their bad debts of over 3 per cent must focus on debt collection.

However, her bank might adjust the figure after the SBV announces the final decision, she said, adding that this year, the Military Bank would implement corporate governance based on the liquidity.

Not only small banks, several giant State-owned banks such as the Bank for Investment and Development of Viet Nam were still worried about a potential increase in their bad debts.

Ngo Van Dung, director of the bank's branch in Ha Noi, said that due to a restriction in public investment, his bank's customers might face a lot of difficulties this year as most of them were involved in construction projects and subject to the tightened monetary policies.

Leaders of the bank announced that the most critical task for the bank's branches this year was debt collection.

Meanwhile, Nguyen Duc Huong, vice chairman of LienVietPost said that though his bank's health was quite good, LienVietPost is still hesitating in lending loans as it does not want to increase the number of bad debts.

However, several other commercial banks still establish their own credit growth rates at high levels. For instance, the Bank for Industry and Trade of Viet Nam or Vietinbank set a credit growth rate of 20 per cent this year.

In the interim, the National Financial Supervision Committee has proposed some short-term measures to partly help banks cope with their liquidity problems, including pumping more money, keeping the compulsory reserve at a low level, and allowing banks to export gold bullion.

Binh assured that the liquidity problems would basically be resolved in the first quarter of this year.— VNS

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