Vietnam banking sector set for surge in M&A activity this year

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An upswing in mergers and acquisitions in the banking system will occur this year, bringing the number of banks in Vietnam to below 30, the Dau Tu (Investment) newspaper has reported, citing experts.

Economist Nguyen Tri Hieu said there will be a strong M&A wave in the sector as many lenders are looking for the right partner for mergers. The number of banks can be cut by one third, he said.

According to the Dau Tu report, many industry insiders said banks with large bad debts are likely to be merged with or taken over by others.

Louis Taylor, general director of Standard Chartered Bank Vietnam, told the newspaper that while the number of banks will be reduced through the restructuring process, the country will end up with more strong banks.

The State Bank of Vietnam announced its plan to restructure the banking system last October. Governor Nguyen Van Binh said the central bank will complete reviewing, classifying and reorganizing all banks by the end of March 2012.

There are eight small lenders that are weak, accounting for 5 percent of the system, Binh said in November, adding that the most difficult task of the restructuring will be dealing with those weak banks. The governor also said the goal of banking reforms is to have 10 to 15 strong banks that can support the whole system.

As of the end of last year, there were 42 banks in Vietnam, including five state-owned commercial lenders.

Three small banks in Ho Chi Minh City with liquidity issues have recently merged, forming the Saigon Joint Stock Commercial Bank. The new lender, also known as SCB, came into operation January 2.

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SCB has a registered capital of VND10.58 trillion (US$503 million) and total assets of VND154 trillion, making it the fifth largest lender in Vietnam, according to the central bank. Its license is valid for 99 years.

The merger, the first since the central bank announced the banking reform plan, was backed by state-owned Bank for Investment and Development of Vietnam. It went more smoothly than expected as depositors stayed calm and did not rush to withdraw their money.

Dau Tu said more M&A deals could go through even without the support of state lenders. The newspaper cited the central bank governor as saying the private sector will be encouraged to join the restructuring process.

Vu Viet Ngoan, chairman of the National Financial Supervisory Committee, said the restructuring of the banking system does not have to be costly as banks are being encouraged to seek M&A opportunities by themselves.

Ngoan also said that all banks have set aside risk reserves equal to more than 60 percent of their bad debts.

However, economist Hieu said 2012 could be the year when the banking system exposes many risks and weaknesses, including bad debts and liquidity problems.

Research group Capital Economics said in a report last month that Vietnam has moved to restructure some of the country's banks after a surge in lending in recent years, which has contributed to a rise in bad debt. "The non-performing loan ratio could easily surpass 15 percent, causing major problems for the banking sector," it said.

In a positive note, the World Economic Forum said Vietnam has a relatively sizeable and efficient banking system. The country's banking system "provides a solid foundation for further growth," the forum said in a report, also published in December.

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