The pressure to strengthen financial capacity to meet regulations such as Basel 2 standards and banking development strategy has caused many commercial banks to consider the merger and acquisition plan (M&A).
To understand whether this trend will be stronger in the near future, the reporter had a talk with Dr Vo Tri Thanh, Member of the National Monetary and Financial Policy Advisory Council.
Reporter: Do you think M&A is an appropriate solution for banks to increase their financial capacity in the coming period?
Dr Vo Tri Thanh: Actually, the M&A story is not newly mentioned. A few years ago, this solution was discussed and there were quite a number of successful mergers. However, due to many reasons, there are also some unsuccessful cases.
Recently, banking M&A is mentioned more when the market has new catalysts. First is the need to raise capital of banks to meet Basel 2 standards. Second is the restructuring process associated with bad debt handling, especially for weak banks, including encouraging foreign investors in general and foreign financial institutions in particular to buy back and merge weak commercial banks of Vietnam. Thirdly, the government has also worked on this solution, strengthening connectivity and working with international financial institutions so that investors feel the determination of the government to support them and the confidence of investors for banks becomes higher.
This is evident that recently, investors from other countries in the region constantly come to Vietnam to seek investment opportunities and offer to join the restructuring of Vietnamese banks. Of course, an important reason to attract investors is the financial health and business performance of many banks.
So M&A activities among banks will be more exciting, sir?
In my opinion, it depends on the risk appetite of investors because the context of the world economy this year is unclear. Although the US-China trade war has positive signals, the world economic growth seems gloomy. In addition, the legal framework for investors to participate more deeply in banking activities is still unclear.
Banks will have to consider many options to raise capital. Even if M&A succeeds and banks increase their capital as expected, M&A is never an easy story for banks. Time and effort to reach an M&A agreement is relatively large. Therefore, banks as well as investors have more to consider this year.
I think that, when the international economy is improved along with a positive move on the government’s policy mechanism and the higher requirements for the banking system, the M&A trend is pushed more strongly with active participation of foreign investors.
Price is always an issue that makes M&A business unsuccessful. In your opinion, on what basis should price be calculated to ensure a win-win situation?
There are many ways to calculate price for an M&A deal such as stock market price, discounted cash flow, future trend, and many other intangible values. Of course, an appropriate price is the price agreed by both buyer and seller. I think, at this moment, it is the most important to look at the future prospects of the bank. In addition, a number of other resonant factors that create more catalysts for this activity are also essential, such as economic prospects in general, macroeconomy, transparency in banking activities, and foreign investing room.
Due to the sensitivity of the banking and financial sector, the room expansion for foreign investors will have to be cautious and based on evaluating the overall role of local and foreign strategic shareholders. Before the trend of larger development and deeper economic integration, I think the view of foreign room should be a little more flexible.
