M&A in Vietnam’s banking sector to catch fire this year

Thanh Nien News

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Vietnam's banking system is expected to further consolidate as an increasing number of mergers could improve the system's financial strength and reduce bad debt. Photo: Thoi bao Kinh te Saigon
Vietnam's banking sector has seen a sharp uptick in mergers and acquisitions this year as at least three banks have announced plans to merge.
Petrolimex Bank (PG Bank), 40 percent owned by Vietnam’s top fuel importer and distributor Petrolimex, drafted a plan to merge with VietinBank, the country's second-largest bank by assets, in a report sent to shareholders last Friday.
If shareholders approve the plan at a meeting on April 18, PG Bank will be acquired by VietinBank but its organizational structure and name will remain the same.
VietinBank will issue new shares in exchange for PG Bank shares in order to take a 99 percent stake at the smaller bank at a rate not lower than 0.82 share of PG Bank for one share of VietinBank, according to the plan.
Cao Si Kiem, former governor of the central bank, said PG Bank’s plan to merge with VietinBank may aim to protect the former’s key shareholder – state-owned Petrolimex -- from incurring losses.
Fuel giant Petrolimex was ordered to halve its stake at PG Bank to 20 percent by 2015 as the government has requested state-owned enterprises divest from non-core businesses.
“If Petrolimex sells its stake in PG Bank immediately, it will suffer losses,” an online newspaper run by the Ministry of Planning and Investment quoted Kiem as saying.
“A merger in which a bank becomes a member of another bank has yet to be recorded in Vietnam. Such a takeover is sure to cause management difficulties,” Kiem said.
An official from a commercial bank, who wished to go unnamed, said it is reasonable for PG Bank to merge with a larger bank, but keeping the name is unnecessary given the fact that PG Bank is not a strong brand.
PG Bank had a registered capital of VND3 trillion (US$142 million) and total assets of VND24.9 trillion ($1.18 billion) at the end of last year. The Hanoi-based lender posted a pre-tax profit of VND51.7 billion ($2.45 million) last year.
At times, bad loans have accounted for up to 9.5 percent of the bank's total assets in the past few years. After the recent sale of some of its debt to the state-owned Vietnam Asset Management Company, the bank's bad debt ratio has fallen to three percent.
Earlier this year, Sacombank, the country's ninth-largest bank by assets, announced a plan to acquire Southernbank thereby becoming Vietnam’s fifth-largest lender by assets behind the four state-owned giants Agribank, BIDV, Vietcombank, and Vietinbank.
Meanwhile, Maritime Bank is set to acquire Mekong Development Bank.
These two acquisitions have already been approved, in principle, by the State Bank.
Nghiem Xuan Thanh, general director of Vietcombank, told Tuoi Tre newspaper his bank would collect its shareholders’ opinion about the proposed M&A in a shareholder meeting due April 23.
“As M&A is a popular trend at the moment, Vietcombank will ask its shareholders’ for feedback so that we are prepared to participate in the trend when a good opportunity presents itself,” the paper quoted Thanh as saying.
Bankers said more planned mergers may be revealed in the near future as the season for shareholder meetings is approaching.
Vietnam’s banking system, stymied by high levels of non-performing loans and cross ownership, has undergone reforms and restructuring since 2011 to increase financial capacity and reduce bad debt.
During that period, the central bank has called for takeovers and restructuring at weak banks.
Under the existing roadmap, the country saw several completed M&A deals including a takeover of Habubank by SHB in August 2012 and the merger of PetroVietnam Finance Corp. and Westernbank last September.
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