Reporter: Bank mergers and acquisitions (M & A) transactions are vibrant and popular in the world. Could you please share the international experience in protecting depositors when bank M & A transactions take place?
Mr. Nguyen Manh Dung:
After four years of the global financial and economic crisis, the banking systems in the U.S., Japan and South Korea were severely affected. But the United States has the best experience in protecting depositors. For three years from 2008 to 2010 and the first six months of 2011, there were 402 bank mergers and acquisitions in the U.S. If this had happened in another country, it could have been disastrous and caused many negative consequences for the whole economy. But the United States successfully conducted M & A transactions for troubled banks and fully protected the interests of more than 100 million depositors. Based on our research and survey on how the United States has done for the past years, we can draw on four typical lessons as follows:
Firstly, the U.S. has a standard resolution procedure for troubled banks therefore there are no signs of banking panic as they are seen in other countries with similar difficulties.
Secondly, there is a good cooperation among the four members of the National Financial Safety Net including the National Financial Supervisory Commission, the Federal Reserve System, the Department of the Treasury and the Federal Deposit Insurance Corporation (FDIC).
Thirdly, FDIC is tasked with being an agency in charge of receiving and resolving troubled banks by these four members. After more than 70 years of operation, FDIC has successfully completed its mission. Now, FDIC has the Deposit Insurance Fund with its assets of about $ 50 billion;
Fourthly, FDIC’s mission and the cooperation issues among the four members of the National Financial Safety Net on M & A activities conducted for troubled banks are stipulated in the Federal Deposit Insurance Act. There are no conflicts and overlapping of powers and responsibilities.
For example, only the Northern Rock bank went bankrupt in England in 2007 but it caused banking panics in London and all its branches throughout the country and seriously affected the interests of depositors. While the U.S. has more than 400 consecutive problem banks but as stated above that no banking panic occurred in the U.S., the banking system remained safe and in particular the interests of more than 100 million depositors were fully protected.
One very striking point should be emphasized that the interests of over 100 million depositors in the United States are protected by a well known principle: "Closing Friday, opening Monday". It means that when an M & A transaction is conducted between a weak bank and a strong one, negotiation on this transaction takes place during the period of 30 to 90 days (depending on its transaction) and it is very secret under FDIC’s supervision and financial support. When two banks have reached an agreement on the acquisition, FDIC will choose the nearest Friday and announce through the mass media that bank A has been acquired by bank B and all the customer’s deposits in bank A have been transferred to ones in bank B, depositors in bank A will deal with their deposits on Monday of the next week in bank B.
Reporter: Based on the experience you mentioned that a strong bank agreed to acquire a weak one. What about the case that a bank is so weak and in such a bad situation that no banks agree to acquire it? Then, how will depositors be protected and how do Deposit Insurers play a role?
Mr. Nguyen Manh Dung:
In case a bank is so weak and in such a bad situation that no banks agree to acquire it, under U.S. Law, FDIC will set up a bridge bank to take over remaining good assets of the weak bank. FDIC will manage, restructure and improve this bank's activities during the period of 2 to 3 years. Then, the interests of depositors are still ensured because the basic operations of the failed bank are maintained by FDIC. After two years, the situation of this bank has considerably improved, FDIC will find a strong bank to acquire this bank based on the principle of “Closing Friday, opening Monday” as stated above. Thus, the interests of depositors are fully protected and the role of Deposit Insurance Agency is very clear and important.
Reporter: In Vietnam, how the interests of over 40 million depositors will be protected when bank M & A transactions take place?
Mr. Nguyen Manh Dung:
Now, bank M & A transactions are not so much vibrant in Vietnam, mainly among Vietnam’s strong banks and local as well as foreign strategic shareholders based on their development strategies. There are no banks officially declared to be weak ones and/or forced to be engaged in M & A activities to avoid collapsing. A few years ago, there were some failed banks, but no failed banks were handled in the form of M & A transactions.
As scheduled, the National Assembly will pass the Law on Deposit Insurance in 2012. One of the four members of the National Financial Safety Net will be tasked with being an agency in charge of receiving, resolving and conducting bank M & A activities by the Government and the National Assembly. The information sharing and cooperation issues among members of the National Financial Safety Net on bank M & A activities will be clearly stipulated in the Law on Deposit Insurance. When there is an agency granted clear powers and responsibilities, we can fully apply the best international experience in protecting the interests of depositors when bank M & A transactions take place.
Reporter: How does DIV assess the M & A prospects in the banking sector in Vietnam next time?
Mr. Nguyen Manh Dung:
In the first six months of 2011, several banks M & A transactions were conducted successfully in Vietnam:
a. In January 2011, the International Finance Corporation (IFC) bought 10% stake in Vietinbank;
b. In January 2011, An Binh Bank sold VND 600 billion convertible bonds to IFC and Maybank.
c. In February 2011, the Vietnam Posts and Telecommunications Corporation bought stocks of Lien Viet Post Bank by transferring the whole postal savings system to Lien Viet Post Bank.
In the future, bank M & A activities in Vietnam which are more or less, vibrant or quiet will completely depend on the banks’ business strategies and the Management Agencies’ policies.
Firstly, foreign investors are allowed to buy 30% stake in Vietnam's banks and increasing the charter capital of Vietnam’s banks up to VND 3,000 billion was deferred till December 31, 2011. Therefore, definitely there will be several bank M & A transactions when Vietnam’s Banks continue seeking local and foreign strategic partners.
Secondly, if the Management Agencies think that the Vietnam banking system is now completely healthy, there will be no bank M & A activities. If the Management Agencies think that the Vietnam banking system now has some weak banks that need to be restructured, bank M & A activities will be vibrant.
As far as I’m concerned, bank M & A transactions will take place because of two reasons:
Firstly, the State Bank issued the No.04/2010/TT-NHNN Circular on stipulating merger, consolidation, acquisition of credit institutions. This is the legal basis for participating in bank M & A activities.
Secondly and of great importance is that only 3 weeks ago, on June 16, 2011, the State Bank released the No. 244/TB-NHNN Announcement of the State Bank Governor’s direction at the Workshop on credit activities implementation for the last 6 months of 2011, including the direction (point 2.4): "The construction of the project on restructuring the banking system to improve the system’s quality, efficiency and safety"