Many experts said that the mergers and acquisitions (M&A) in banking sector will continue to be exciting in the near future as many banks are accelerating to restructure and raise capital to meet Basel II standards.
The attractiveness of banking sector
Recently, South Korean investor KEB Hana Bank has acquired 15 percent stake of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) at a price of about 33,640 dong per share. This is considered a suitable price in the current market context which meets the needs of both parties.
Previously, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) sold three percent of its capital to GIC Private Limited and Mizuho Bank Ltd And collected 6.2 trillion dong. According to information, the bank continues to promote the plan of selling 6.5 percent of its shares from now until 2020.
Many investors are looking for opportunities to pour capital into Vietcombank. In particular, GIC, after buying 2.55 percent of Vietcombank’s stake, still expects to join the upcoming share offering of the bank.
In addition, the merger of Petrolimex Group Commercial Joint Stock Bank (PGBank) and HCM City Development Commercial Joint Stock Bank (HDBank) with a share conversion rate of 1:0.62 is expected to be completed by the end of this year.
In addition, Chair of the Board of directors (BOD) of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) said that Ocean Commercial One Member Limited Liability Bank (OceanBank) is also in the final stage of completing procedures to cooperate with foreign partners. Meanwhile, Global Petro Commercial Join Stock Bank (GPBank) is currently strengthening its performance and some foreign investors are interested in a long-term cooperation.
Although the name of the foreign investor who intends to acquire OceanBank has not been disclosed, if this becomes real, this M&A deal promises to bring a big boost in the restructuring of Vietnam’s banking system.
Many experts said that there will be more M&A deals in the banking sector in the near future as the deadline to apply Basel II standards is approaching (January 1st 2020).
Tran Thi Bao Ngoc, director of Investment Banking Division, Securities Company of Vietnam Prosperity Commercial Joint Stock Bank (VPBS) said that the M&A market in banking and finance sector still has a lot of room for foreign investors. In the second half of this year as well as in the near future, the banking and finance sector is still a fairly “hot” sector with high attractiveness, attracting the attention of foreign investors.
Ngoc said that in fact, the business efficiency of domestic banks has been improved in recent time. Therefore, although certain limitations still exist in the banking sector, such as the regulations on controlling foreign investors to participate in transactions, etc., but that does not reduce investors’ interests in this sector. Investors, especially investors from South Korea are and will continue to pay attention to Vietnam’s financial market.
From a management perspective, Vo Tri Thanh member of the Advisory Council for National Financial and Monetary Policies believed that the M&A market of Vietnam’s banking sector will be attractive for three reasons including. The first reason is the need to raise capital to meet Basel II standards of banks. The second reason is the restructuring process which is associated with bad debt settlement, particularly for weak banks, including the policy to encourage foreign investors in general and foreign financial institutions in particular to acquire or merge with weak commercial banks of Vietnam. Thirdly, the government has also worked on this issue, strengthening connectivity and promoting meetings with international financial institutions.
Difficulties in valuating and finalising prices
The M&A deal between BIDV and South Korean investor took BIDV more than four years to complete, from the time the deal was announced to the time the transaction was announced. Meanwhile, the negotiation process took KEB Hana more than a year to finalise the deal.
BIDV’s leader shared that the delay in official signing is because the negotiation and stake sale had to go through many procedures and needed the support of relevant agencies.
BIDV’s Chief economist Dr Can Van Luc said that the stage of approving administrative procedures of the authorities is still fairly slow. Not to mention, it is difficult to agree on the selling price among the parties, in which one of the reasons is the current complex mechanism on valuating and closing price. To speed up the progress of banking M&A, it is necessary to revise relevant regulations to simplify the valuation and price closing process.
Sharing similar point, Dr Bui Quang Tin, Chair of Bizlight Entrepreneur School, said that with market developments and current regulations, selling price is the most difficult issue in the deals at state-owned commercial banks. “In banks with large state ownership rate, the selling price of share is said to may cause disadvantage to the state capital if it is lower than market price. Therefore, when the stock market goes up, it is more difficult for these commercial banks to sell their capital to partners,” said Dr Tin.
