Mergers and acquisitions (M&A) of banks are expected to see changes in 2020 when the industry’s activities are facing difficulties and facing the pressure to improve risk management.
At the Annual general Meeting (AGM) of HCM City Development Commercial Joint Stock Bank (HDBank) on June 13th, many shareholders were wondering about the progress of the merger between the bank and Petrolimex Group Commercial Joint Stock Bank (PGBank) which was approved by shareholders two years ago and approved in principle by the management agency. HDBank’s vice Chair of the Board of directors (BOD) Nguyen Huu Dang said that the document of the deal has been completed and submitted to the State Bank of Vietnam (SBV). However, in terms of business, HDBank and PGBank are supporting each other as well as regulating personnel for business activities.
Nguyen Thi Phuong Thao, vice Chairwoman of HDBank said that the merger between the two bank is behind schedule. Previously, HDBank planned to pay dividends after the merger, but since the merger cannot be completed yet, the bank decided to pay dividends in shares at a rate of 50 percent in order to increase charter capital this year.
Meanwhile, at Dong A Commercial Joint Stock Bank (DongABank), after unsuccessfully consulting shareholders at the extraordinary general meeting in October 2019, the bank must submit to the SBV a new restructuring plan. According to audited figures of Ernst & Young Vietnam, as of December 31st 2018, the business results of DongABank recorded accumulated losses and negative equity. Therefore, to compensate for the negative equity and ensure the charter capital to at least be equal to the legal capital as prescribed (three trillion dong), DongABank chose to perform a private placement.
Report of Ernst & Young Vietnam also showed that by the end of 2018, the amount of capital needed to be supplemented was 33.480 trillion dong. Thus, in the market, there was information that DongABank would soon be merged into another large-scale bank, but may retain its brand. DongABank’s shareholders expect that this can revive the brand that has been favoured by customers in card services, personal customers, remittances, etc.
However, the acquisition of DongABank requires investors to have an amount of “real money” reaching up to 35 trillion dong (equivalent to 1.5 billion US dollars) to offset the bank’s negative capital and accumulated losses. In addition, the price level must be reasonable.
Dr Tran Du Lich, member of the Economic Advisory Group of the prime minister, said that the acceleration of restructuring in the last phase of the banking industry also means a gradual removal of weak banks from the system. In fact, the Scheme of restructuring the system of credit institutions (CIs) in the new period is being formulated by the SBV. Banks that have not yet completed the restructuring roadmap will have to sprint. At the same time, the pressure to raise risk management to new standards has increased.
The pressure to improve risk management
Year 2020 is a year with many fluctuations and risks for the world and Vietnam economies due to the ongoing Covid-19 pandemic. In this context, banks are very cautious in lending to real estate sector because many markets may be affected by the global economy and the real estate market has obviously slowed down.
A banking expert said that the market will not fall into crisis but if not careful, it will go into a recession. For banks, risk management is always important. Notably, this year, the effectiveness of Circular 41/2016/TT-NHNN regulating the capital adequacy ratio for banks and foreign bank branches and Circular 13/2018/TT-NHNN regulating the internal control system of commercial banks and foreign bank branches will have a strong impact on banks in restructuring their risk management system.
On the other hand, according to the provisions of the new Circular 11/2019/TT-NHNN, from October 1st 2019, based on the actual situation and level of risk in the operation of CIs, the SBV’s governor or director of SBV branches will consider and decide to put CIs under special control in the form of special supervision or comprehensive control.
Dr Nguyen Tri Hieu, a banking expert, the risk management issue of banks will be significantly strengthened in 2020. Banks much apply Circular 41 right from the beginning of the year. If they are not ready, the SBV can give them more time in the year to carry out. If banks fully comply with the provisions of Circular 41, risk management will be stricter.
Hence, M&A in banking industry will continue to see “waves” with the implementation of many deals, including the deals of three weak banks (Construction Bank (CBBank), Ocean Bank (Oceanbank) and Global Petro Bank (GPBank). Some people said that to revive these banks, the participation of foreign shareholders is needed. Recently, some foreign investors have indirectly sent words about this.
GPBank has announced to seek strategic investors to restructure under the direction of the SBV. However, due to the lack of transparency in PGBank’s operation, there is no information showing that the bank has managed to call for strategic investors. Meanwhile, J Trust Group said that it wants to participate in CBBank’s restructuring.
In fact, the restructuring of these banks is facing many difficulties, even when banks find strategic investors. According to current regulations, since the plans to restructure weak banks must consult with many ministries and sectors, it takes a lot of time, so the opportunities for cooperating with strategic investors, especially foreign investors, many be missed.
