M&A picks up speed in banking

Update: July, 20/2015 - 08:43

Compiled by Thien Ly

At an extraordinary meeting on July 11 Sacombank shareholders approved plans to merge with Southern bank and issue three-fourths of a share for each share of the latter.

Recently many other mergers and acquisitions (M&A) have taken place in the financial sector, including between BIDV and MHB, Mekong Bank and Maritime Bank, and HDB and Dai A Bank.

Many other credit institutions have been targeted for restructuring through M&A in the near future — like Vietcombank and Sai Gon Bank, PGBank and VietinBank, DongA Bank and ABBank, NamA Bank and Eximbank.

According to SBV and the banks, M&A would make a positive contribution to the restructuring process and also speed up implementation of the Government and SBV's policies to stabilise the economy and banking system.

Analysts also say the continuing M&A in the banking sector will help resolve the cross-ownership problem as required by Circular No 06/2015/TT-NHNN, which took effect on July 15.

The circular is designed to tackle the problem of shareholding in excess of legal limits by individuals and institutions, which, along with cross-ownership, has been identified as a critical weakness of the banking sector.

It also provides a timeline and spells out procedures to bring ownership thresholds in line with those stipulated in Article 55 of the Law on Credit Institutions, and penalises non-compliant shareholders by suspending dividends and their right to serve on the board of directors among other sanctions.

Article 55 restricts ownership in credit institutions as follows: individuals may not own more than 5 per cent of the chartered capital of a credit institution; an institutional shareholder may not own more than 15 per cent; and a group of shareholders together may not own more than 20 per cent.

But in reality, many individuals and institutions have much higher stakes in local banks, enabling them to influence them and increasing the likelihood of the banks being less than transparent in their business activities.

According to the central bank, five of the total 33 banks in the country breach the ownership law.

Securities companies have revealed that EVN still owns 16.02 per cent of ABBank, PetroVietnam (PVN) has a 52 per cent stake in PVcomBank and the Masan Group (MSN) has 19.5 per cent of Techcombank's shares.

Vietcombank is a significant shareholder in four lenders — Eximbank (8.19 per cent), Military Bank (11 per cent), Phuong Dong (4.7 per cent), and Sai Gon Cong Thuong (nearly 5.3 per cent).

Increasing the limit

The State Bank of Viet Nam decided recently to increase the credit growth limit for nearly 20 banks, including foreign, to boost economic growth.

For SHB, it has been raised to 15 per cent, while at the other end, BaoVietBank will be allowed to expand its lending by 36 per cent.

The others, who include State giants Vietcombank and VietinBank, the new caps will be somewhere in between.

The central bank also adjusted the caps for some foreign banks. For Standard Chartered Vietnam, it is now 30 percent, and for Korea Exchange Bank's Ha Noi branch, it is 35 percent. The ceiling for Taipei Fubon's Binh Duong branch is 20 percent.

With the new, higher credit growth limits, the banking sector's credit growth this year is expected to rise to 17 per cent instead of the 13-15 per cent envisaged earlier.

The central bank's decision is attributed to several reasons, one of which is the sector's strong credit growth of nearly 6 per cent in the first half of the year against December as the corporate sector showed signs of recovery.

The increase in the credit cap is also aimed at meeting the increasing demand for funds as production and business activities normally peak towards the end of the year.

Analysts said Viet Nam is an economy that heavily depends on banking credit, and so loosening monetary policy is vital for economic growth.

But they said however that many domestic banks rely heavily on lending rather than value-added services for profits, an unsafe and unsustainable situation.

To improve their liquidity situation, they would have to raise deposit interest rates but cannot increase lending rates because of the intense competition.

This would reduce their spread significantly to just 2.5-2.7 per cent. Already, though banks'loans outstanding figures increased substantially at the end of the first half, their profits were lower than last year.

Analysts also warned of a possible surge in non-performing loans because of increasing the credit growth cap.

They said while lending surely played an important role, banks should also focus on developing services to ensure safe and sustainable development.

Advantage exporters

Huynh Van Ba, director of a furniture factory in Binh Duong Province, recently decided to invest nearly US$1 million in upgrading technology and equipment at his facility in an effort to improve its production capacity and product quality.

He said he decided on the investment to take advantage of opportunities arising from the recovery in both the domestic and overseas markets and from free trade agreements that Viet Nam has been signing with many countries.

His factory's products are mainly exported to the US and EU markets.

In the first half turnover rose by 20 per cent.

According to the Handicraft and Wood Industry Association of HCM City (HAWA), many of its members are seeking loans for upgrading technologies to boost their competitiveness to survive in the context of the country's strong economic integration and grow.

But the advantages arising from the country's economic integration are not restricted to furniture companies and will enable many other industries too to expand exports.

Analysts said that Viet Nam has a golden opportunity to increase its exports.

The Viet Nam Chamber of Commerce and Industry (VCCI) pointed to the free trade agreement Viet Nam recently signed with the Eurasian Economic Union (EAEU) as an example.

The agreement would open up numerous business opportunities for both sides with 90 per cent of items seeing tariffs reduced, 53 per cent of them to zero, when the FTA takes effect, he said.

Viet Nam would be able to access the 182 million-strong market with the GDP of about $2.4 trillion in 2014. Vietnamese businesses will benefit not only from exports but also from imports thanks to the agreement. It can import petroleum products, fertilisers, and steel.

Significantly, the agreement will help Viet Nam attract investors from the EAEU with deep pockets and technology.

This will in turn help domestic firms improve the quality of human sources and accelerate their restructuring process to improve competitive ability.

Economists however said that to make full use of all these advantages, Vietnamese firms must take the initiative to intensify investment and make technological improvements in ways that can help them firmly integrate with world markets.

They also stressed the need for exporters to strictly conform to quality criteria to safeguard the reputation of Vietnamese products. — VNS