Financial M&A expand slowly

Mergers and acquisitions (M&A) in the banking and financial sector have quietly expanded so far this year, with financial institutions in need of external backing to stay strong during the domestic economic turmoil.

Mergers and acquisitions (M&A) in the banking and financial sector have quietly expanded so far this year, with financial institutions in need of external backing to stay strong during the domestic economic turmoil. However, many experts see them as a difficult, convoluted process.
Lien Viet Bank late last month changed its name to Lien Viet Post Commercial Joint Stock Bank after VNPost bought an 18 per cent stake in the bank using money from a subsidiary as capital.

“The merger helped knock off 100 years from the time it takes a medium-sized bank to become a strong retail bank,” said Lien Viet Post Bank’s General Director Nguyen Duc Huong after the deal was agreed.

International Finance Corporation (IFC), a financial arm of the World Bank, has acquired a 10 per cent stake in Vietinbank for US$182 million.

An Binh Bank (ABBank) sold VND600 billion ($29.26 million) in convertible bonds to the IFC and Malaysian bank Maybank, and the Mekong Development Bank (MDB) sold a 15 per cent stake to FFH – a Temasek investment unit.

Vietinbank also plans to sell a 15 per cent stake to the Bank of Nova Scotia (Canada).

The bank’s chairman Pham Huy Hung said that a stake sale to a well-known partner would create favourable conditions for the bank to take advantage of technology, risk management and training.

The Commonwealth Bank was quoted by Dow Jones earlier this year as saying that it wanted to increase its stake in the Viet Nam International Bank (VIB Bank) from 15 per cent to 20 per cent, pending Prime Ministerial approval.

“Mergers and acquisitions are an effective investment channel, a leading way to participate in the market and a solution for restructuring and increasing revenue,” said Minister of Planning and Investment Vo Hong Phuc at an investment forum earlier this month.

However, only a modest six deals have been struck involving Viet Nam’s 39 credit institutions, leading some industry insiders to say that M&A in the financial sector are more complicated than in others.

Bao Viet Securities General Director To Hai said that due to certain specific features of the sector, M&A could not happen on a large scale because the disclosure of financial details of the transaction, market value and contractual conditions were mostly confidential.

Hai also said that in 2010, several banks were unable to raise their charter capital to VND3 trillion ($146.34 million) to meet Government regulations, but still decided not to merge because the process was too complicated. This forced the Government to extend the deadline for banks to reach the necessary level of charter capital to the end of this year.

PetroVietnam Securities Inc (PSI) General Director Pham Quang Huy countered that M&A did not always have to be big deals, saying that banks could still benefit from smaller deals.

According to a recent survey by international consultants Grant Thornton, 17 per cent of Vietnamese businesses said they planned to boost growth through M&A this year compared to 19 per cent in 2010 and 15 per cent in 2009. Up to 20 per cent of Vietnamese businesses said they expected changes of ownership, double the global average rate.

The Competition Management Department, under the Ministry of Industry and Trade, forecasts that M&A in Viet Nam would continue to flourish in 2011 and over the next few years, growing at a rate of 30-40 per cent.

However, some experts said that the lack of a legal framework for M&A activities, stringent liquidity conditions and limited human resources and understanding of M&A would dampen this expansion. – VNS

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial