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Drastic measures needed to help weak banks

Update: August, 20/2012 - 15:01

HA NOI — The State Bank's goal of helping struggling banks will become more difficult if the Government does not initiate more drastic measures, according to economist Le Xuan Nghia, ex-vice chairman of the National Commission for Financial Supervision.

Meanwhile, other economists expressed worry that the process of restructuring commercial banks has come to a standstill. They said if commercial banks overcame the risk of liquidity, they would try to get benefits as a group by delaying the restructuring process.

If this problem continues to take place, the whole banking sector may become insecure. Therefore, the central bank needs to put more pressure on weak banks to accelerate the restructuring process.

Early this year, State Bank announced that it would implement mergers and acquisitions (M&A) for 5 to 8 badly performing banks in the first quarter. Ha Noi Housing Commercial Joint Stock Bank (Habubank) officially merged into Sai Gon-Ha Noi Joint Stock Bank (SHB) this month to become the first M&A deal in 2012.

The newly-formed bank will be named Sai Gon-Ha Noi Commercial Joint Stock Bank, with a charter capital of nearly VND9 trillion (US$428.57 million) and total assests of over VND100 trillion ($4.76 billion). It will have around 500,000 customers and 5,000 staff. After the merger, one share of Habubank will be equal to three-quarters of an SHB share.

Dao Minh Tu, deputy governor of the State Bank, said that no optimal plan to restructure weak banks was sent to the central bank for consideration.

The central bank was active in the process of restructuring weak banks; however, this process depended on optimal plans made by the banks. Some banks were now negotiating spontaneously for their M&A process. The central bank expected that the M&A process of badly-performing banks would reach its target this year, said Tu.

A banking official said that to avoid information leaks about M&A deals between banks like the merger of Habubank and SHB, most banks keep their search for partners quiet. The State Bank requires this silence to keep any information about M&A deals confidential before it is made public.

Over the years, some commercial deals have fallen to pieces after both sides failed to reach an agreement, the official said.

Nguyen Thi Mai Suong, director of the State Bank's branch in Ha Noi, said at least three banks were now required by the central bank to undergo M&A.

TienPhong Bank has permission from the State Bank to restructure itself, while Habubank officially merged into SHB after seven months of preparation. And GPBank has not yet sent its official restructuring plan to the central bank, said Suong.

In another development, rumour has it that PetroVietnam Finance Corporation (PVFC) will merge with Western Bank. Nguyen Thien Bao, director general of PVFC, told theVnExpress that he did not reject, but also did not confirm, the existence of an ongoing negotiation between the two sides.

PVFC is previously responsible for arranging financial deals for PetroVietnam and member companies, so it has less experience in retail banking services. Experts said that a merger with a badly-performing bank could be a smart choice for PVFC. PVFC could take advantage of that bank's client network and experience to develop.

Earlier, the central bank reiterated that it encouraged voluntary mergers and acquisitions among local lenders to improve their financial capability and operation as well as to ensure the safety and sound development of the whole system.

In December 2011, Sai Gon Commercial Bank (SCB), Viet Nam Tin Nghia Bank (TinNghiaBank), First Commercial Bank (Ficombank) announced their merger into one entity named [new] SCB with charter capital of VND10.58 trillion (US$503 million). — VNS

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