Just the start: analyst expects more bank mergers

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The central bank has approved the merger of three small banks Ficombank, Saigon Commercial Bank, and Vietnam Tin Nghia Bank that are mired in liquidity problems. The restructure of banks will continue for the next three to five years since some lenders remain weak, Dr. Le Tham Duong of the Banking University of Ho Chi Minh City tells Thanh Nien Weekly in an interview.

Thanh Nien Weekly: What do you think about the merger of the three banks?

Le Tham Duong: In terms of crisis management, the merger is a good and timely move. During crises, action should be taken quickly and drastically.

There were many ways to deal with the case of the three banks: we could have let them go bankrupt or merge. But I think the measure taken by the State Bank of Vietnam in this case is an optimal solution. The merger has had a good effect, helping depositors feel secure about their deposits. The deposits at the banks have been stable for the past few days. The move has also helped the banking system become more stable.

However, we should learn from the experience. The merger was done on a voluntary basis but it still needed a state-run bank to play a major role in the newly formed bank. (The central bank had assigned the state-run Bank for Investment and Development of Vietnam, or BIDV, to represent and manage the government's stake in the new bank.)

The merge was done in a passive manner, only after the three banks faced liquidity problems.

Is the newly formed bank better?


Dr. Le Tham Duong, Professor at the Banking University of Ho Chi Minh City

If the three banks did not merge, the consequences would have been major due to their liquidity problems. The merger is much better than letting the three banks remain unchanged. After the merger, BIDV will manage the activities of the new bank"¦ Thus, the merger is better.

How will the three banks' bad debts be dealt with?

The banks faced liquidity problems because they mobilized short-term deposits but gave long-term loans. However, the big concern is whether the banks' loans are just long-term, causing temporary liquidity problems, or bad debts. If they are bad debts, they will be a big burden on the new bank. It will have to suffer the bad debts, but it can, with the support of a strong BIDV, deal with them.

What are the issues that need to be addressed after the merger?

The merger could help prevent the collapse of some small banks. But there is a series of issues to be dealt with after the merge. For example, we have to calculate the cost of the merger.

The quality of the new bank will not be better if we do nothing. A thorough restructuring of the bank, from personnel to technology issues, should be performed. The bank should focus on the ownership and management restructure. The most important is to proactively improve risk management.

Can other lenders invest in the new bank now?

Yes, they can. However, at the current stage, investors will very carefully consider their investment in the new bank. Other institutions, including foreign ones, can invest in the bank if it is permissible under the law. However, the issue is whether investors now want to invest in the bank or not.

Will Vietnam see more bank mergers?

Obviously, mergers will continue to occur since we still have some weak banks. The restructure of banks will continue for the next three to five years. We have to implement the restructure of both small and large banks in a drastic manner.

We need to restructure the whole financial system, not just banks. Banks are the core of the financial system, which also comprises insurers and securities companies.

Restructure could be implemented in many forms, including mergers. If banks are not too weak, they could undergo mergers or acquisitions. We have restructured the three banks. According to a report from the central bank governor, we will restructure five other banks. Maybe two banks in HCMC could combine with one in Hanoi to form a new bank, and two banks in Hanoi could merge to form another new one.

"˜A STRONGER BANK'

Nguyen Manh Dung, deputy general director of the Deposit Insurance of Vietnam, said the merger would help form a sound new bank since it has a registered capital of nearly VND10.6 trillion (US$503.7 million) and an asset base of VND154 trillion ($7.3 billion).

Besides, the state would contribute capital to the newly formed bank through the BIDV, which would participate in its management, he said. Thus, the merger would create a stronger bank in terms of both capital and management, in the process safeguarding the interests of depositors, he added.

The new bank is expected to begin operations on January 1. It will retain the name of one of the three lenders, Saigon Commercial Bank, according to a plan announced last week.

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