An overview on the Vietnam banking M&A in 2013 and its trends in 2014

1. The situation of Vietnam banking M&A during 2013

a. The M&A deals

Notes:

AQ: acquisition;                               M: merger

TO: takeover                                     TF: transfer

In 2013, the number of M&A deals has increased compared to several previous years. Some typical examples were: i) Petro Vietnam Finance Corporation (PVFC) took over Western Bank; ii) Thien Thanh Corporation acquired Dai Tin Bank. Among 5 M&A deals, 2 cases related to international partners which are the transfer of 2 branches of LVB in Vietnam to BIDV and HD Bank acquisition of SociétéGénérale Viet Finance (SGVF).

b. Banking divestiture deals

In 2013, we have acknowledged some capital divestitures from the banking system. These deals almost happened  in Q4/2013. The following table aimed at focusing on official deals; however, according to this field’s experts, there may have other undisclosed transfers or divestitures from banks, which were not subject to information disclosure regulations.

Through the above table, we have recognized 3 major types of divestiture deals:

-         First, the individual investors withdrew capital from banks. A typical example was that Mr. Dang Thanh Tam’s family divested of Navibank. The information on individual investors’ deals was rarely or not published.

-         Second, the state-owned corporations divested of banks or banks divested of banks. These deals were carried out based on the fact that the state-owned corporations were obliged to restructure their capitals based on the “non-investment out of core businesses” rules enforced by the Government. However, there were challenges to find out partners who bought their shares in banks. A case in point, Petro Vietnam could not find partners to buy all its shares in Ocean Bank. However, based on our perspectives, this would be the main trend of banking M&A in the future given the fact that a great number of groups and corporations at this moment have plans to withdraw their capitals from banks.

-         Third, there were deals which happened among banks, e.g. ACB divested of Kien Long Bank and so did Eximbank/OCBC of VP Bank. These deals contributed to alleviate the complicated cross ownership problems in Vietnam based on the conclusive steering of the Government and the SBV.

2. Several typical banking M&A deals in 2013

2.1 IFC and Maybank with ABBank

On April 23 2013, An Binh Bank has published information on issuing shares to foreign investors which were International Finance Corporation (IFC) and May Bank. This deal was carried out following their compulsory conversion from bonds to common stock on April 18, 2013 based on the tri-parties contract signed in December 2010. Given this conversion, IFC became a major shareholder of ABBank along with other groups such as Vietnam Electricity Corporation (EVN) and Ha Noi Export-Import Company (GELEXIMCO Group). According to the current legal framework, foreign shareholders are allowed to own up to 30% of the chartered capital of a Vietnamese bank and this cap has been reached at ABBank. With the capital contribution from IFC as well as additional capital to maintain the 20% ownership ratio of Maybank, chartered capital of ABBank has increased from nearly VND 4,200 billion to nearly VND 4,800 billion.

2.2 The Western Bank and PVFC deal

On September 9 2013, the SBV issued the Decision No.2018/QD-NHNN on merging Western Bank and Petro Vietnam Finance Corporation (PVFC) to become Vietnam Public Joint Stock Commercial Bank (PVCombank) with its chartered capital at VND 9,000 billion. This bank should assure that the real capital would not be lower than chartered capital in line with the current legal framework. In total, the network of PVCombank comprises of 102 merchant locations including 1 Headquarters, 30 branches, 67 merchant locations and 4 savings funds.

Several estimated business ratios of PVCombank until 2015

Based on the merger plan, PVFC and Westernbank issued a roadmap to resolve bad debt, in which bad debt was expected to gradually diminish to 4.2% in 2012, 3,61% in 2013 and 3,34% in 2015.

2.3 The Dai A Bank and HDBank deal

In late December, the shareholders meetings of Dai A Bank (December 25) and HD Bank (December 28) have taken place and approved the merger plan between the 2 banks. After merging, the new bank still kept its brand name as Ho Chi Minh Housing Development Joint Stock Commercial Bank (HD Bank), its chartered capital increased from VND 5,000 billion to VND 8,100 billion (in which VND 3,000 billion from Dai A Bank) with total asset at VND 77,244 billion. Its total asset target was expected to increase from VND 77,244 billion to VND 92,656 billion in 2014 and to 111,979 billion in 2015, equal to 20.4% jump. Similarly, profit before tax was targeted to increase from VND 723 billion in 2013 to VND 1,001 billion in 2014 and to VND1,302 billion in 2015. Chartered capital would be raised from VND 8,100 billion to VND 9,325 billion in 2015.

The share conversion was calculated based on the formula that  one share of Dai A Bank was converted to one share of HDBank (VND 10,000/share). Accordingly, all the current shareholders of DaiA Bank became those of HDBank.

On November 23 in Ho Chi Minh City, HDBank organized a launching ceremony where two decisions of the SBV on merging HDBank with Dai A Bank and on the HDBank’s acquisition of Société Générale Viet Finance (SGVF) were announced.

3. Perspectives on M&A trends in 2014

Based on the summarization and analysis of the banking M&A in 2013, we think that the main banking M&A trend in 2014 would take place in 2014 in the following priority sequence:

·        The main trend  for the whole year 2014 would be the divestiture of Groups and Corporations out of banks

·        Banks would be active in finding out new foreign strategic partners

·        M&A deals would continue to be expanded to resolve problematic banks

·        Some big banks could be merged to form regional-equivalent banks based on the guidance of the SBV

The following will be some deals which could be implemented in the future

Deals which could be implemented in the future

4. The role of the Deposit Insurance of Vietnam (DIV)

From 2011 when First Bank, Vietnam Tin NghiaBank and Saigon Bank were merged into Saigon Joint Stock Commercial Bank (SCB); Hanoi Building Joint Stock Commercial Bank (HBB) was taken over by Saigon - Hanoi Joint Stock Commercial Bank (SHB) as well as other M&A deals afterwards, the DIV has officially sent messages to the public in general and depositors in particular that the rights of depositors were to be protected in any circumstances.

In 2013, Tran Cao People’s Credit Fund in Hung Yen Province has been bankrupted due to the moral hazards of its Board of management. The DIV has paid out total insured deposits in the first stage at VND 4,940,458,900 to 172 depositors whereby implementing the DIV’s commitments  at the same time enhancing the public confidence of depositors to the Vietnam banking system.

Conclusion

In 2013, Vietnam economy has been facing intense difficulties and strived to escape from the bottom of the crisis. 2014 is coming with brighter hopes and expectations that macro economy will have more positive signs right from the beginning of the year. The contributions and results of the banking industry in 2013 on the interest rate, exchange rate, foreign reserves are decisive factors contributing to the stable macro economy. In the new year, we believe that the Board of management of the SBV will continue to maintain those positive elements, at the same time successfully implement the Blueprint No 254 in restructuring the banking system aiming at forming the stable and gradually stronger banking and finance system, to efficiently contribute to the development of the Vietnam economy during the Year of Horse.

Nguyen Manh Dung - Deputy General Director of The Deposit Insurance of Vietnam;

Nguyen Duc Viet - Deputy Director of the Financial Support Department