Banking restructuring via M&A, not an easy task: Expert

Disposing of commercial banks of poor risk management should be the very first to come in the banking restructuring process, said economic expert Bui Kien Thanh.
Still, whether these entities are to be merged with larger ones, with each other or their business operations are to be scaled down is a big puzzle.

Do you think that the current amount of credit institutions is beyond the economy’s absorption capacity?

Apart from twelve large commercial banks which make up 85pct of the market share, more than 30 other Vietnamese lenders and nearly 50 foreign banks and foreign bank branches account for only 15pct of the market’s total outstanding loan.

It is these small lenders who are less popular among people that count on mobilisation rate hikes due to the absence of special services as well as sound management in an attempt to woo depositors. Likewise, larger ones have also pushed up interest rates for fear of savings inflows into other peers offering more tempting rates.

What do you think should be the first stage of banking restructuring?

It is important that the existing 30 small commercial banks needs classifying those with strong management and those with poor management. The former should be supported for technological, human and management enhancement whereas the underlying shortcomings at the latter are to be identified.

As for those who may not be able to raise chartered capital to 3 trillion dong by the end of the year as required, strong liquidity and few operational risks would be much more appreciated than the chartered capital of as much as 5-6 trillion dong with high risk level

Do you think merger of weak banks with larger ones is a good thing?

It is not an easy task. As a matter of fact, large commercial banks would prefer stronger small peers to the remainder for a merger which would mean assuming liabilities for the bad debts of the smaller ones.

So what is your opinion of small banks being merged with each other?

Small solid banks should stand on their own feet and could get together in the face of upcoming difficulties despite currently profound performance. Yet, consolidation among feeble entities could further worsen the existing hardships.

The central bank, therefore, should have investigation and inspection carried in order to identify the fragile banks which should then be disposed of so as not to hurt the industry as well as the economy.

What do you think of the suggestion that the central bank could acquire shares of small banks that are on verge of closure for management rights?

I do not think highly of this suggestion. Commercial banks’ health should all put under close surveillance so as to shore up weak entities. Yet, those which are beyond cure should be forced to face either closure or bankruptcy.

According to Dr Le Tham Duong, Head of Business Administration Faculty, Banking University of HCM City, small banks that fail to meet the operational standards may be merged with larger players, which could face a great deal of obstacles due to missing synchronous policy between the two different entities. Also, large banks would perhaps reluctant to take responsibility of a range of bad debts following the merger.

He assumed that the majority of small banks should restructure towards becoming a sectorial bank which could benefit borrowers such as small and medium sized enterprises while mergers would be required for others. – Source: Vietbiz24.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial