Rationale to the research
International economic integration is a crucial development trend that fosters cooperation among countries for mutual advantage In the banking sector, this integration drives the growth of banks while simultaneously intensifying competition within the industry.
Mergers and acquisitions are viewed as a strategic solution in the banking sector, offering numerous benefits such as enhanced market positioning, increased market share, cost savings, and asset maximization for shareholders, while also helping to prevent bankruptcy Many countries have utilized these strategies to foster a stable financial system, mitigate disruptions, and boost competitiveness Although mergers and acquisitions have been prevalent globally, particularly since the financial crisis of 2007, this trend is relatively new in Vietnam's banking industry.
Since joining the WTO, Vietnam's banking sector has undergone significant transformation, experiencing substantial growth in size and operational types However, this international economic integration has also introduced challenges, particularly for smaller commercial banks that struggle with competition in lending capacity, technology, and modern banking products and services.
Despite the recent financial crisis, Vietnam's economy has shown resilience due to its level of integration, although the country's commercial banks have exposed significant weaknesses and risks, undermining public trust Governance issues contribute to heightened liquidity risks, challenges in mobilization, and increasing bad debts in real estate and stock markets The high degree of systematization within the banking industry means that difficulties faced by one bank can have widespread repercussions, ultimately impacting the broader economy.
In early 2009, Vietnam welcomed its first bank with 100% foreign capital, marking a significant shift as barriers began to fall in line with WTO accession commitments This development poses a considerable challenge for domestic banks, as foreign institutions equipped with extensive resources, professional management, operational experience, modern technology, and a diverse range of products and services aim to penetrate the Vietnamese market.
Vietnam's economy is characterized by a steadily evolving market system, achieving an impressive GDP growth of 7% to 8% annually Despite these significant accomplishments, the country faces notable challenges, particularly in the banking sector, where rising non-performing loans and liquidity issues are prevalent As a result, the urgent need for comprehensive restructuring of the financial system has become increasingly critical.
In light of the current economic landscape and the condition of the banking system in Vietnam, the researcher has selected the topic "Merger and Acquisition in the Banking System – Case of Vietnam" for their graduation thesis.
Firstly, the thesis clarifies the concept of merger and takeover as well asthe implementation modalities of bank M&A
The article provides essential insights into mergers and acquisitions (M&A) in Vietnam's banking sector, focusing on recent trends and developments It aims to deliver foundational knowledge about M&A activities, presenting an objective analysis of the current landscape and exploring future prospects for this growing trend.
Finally, according to research results, the thesis offers solutions that help commercial joint stock banks of Vietnam to implement successfully merger and acquisition
Because of time limitation, the thesis covers situation of the whole banking system in the period from 2008 to 2014
The thesis is researched with methods of collecting, analyzing, comparing and adjusting
The graduation thesis is firstly written basing on the collection of reliable theoretical sources about bank M&A activity These sources include economical books and official laws
To accurately depict the landscape of bank mergers and acquisitions (M&A) in Vietnam, this study utilizes data from the official annual reports of the State Bank of Vietnam (SBV) and various commercial banks The analysis examines the trends over the years, providing a comprehensive evaluation of both the successes and challenges associated with these activities.
Apart from the introduction and conclusion, the thesis is divided into three main chapters and organized as follows:
Chapter 1: Theoretical framework about bank M&A
Chapter 2: The reality of bank M&A in Vietnam
Chapter 3: Outlook of the trend in the near future and recommendation
PART B: DEVELOPMENT CHAPTER 1: BANK M&A – THEORETICAL FRAMEWORK
This chapter helps readers understand the issue in the most basic and adequate way The readers will probably know what bank M&A is, why and how bank M&A happens
1.1 Review of Previous Work and Books
M&A Operations and Performance in Banking (Elena Beccalli, Pascal Frantz (2009))
A study conducted by two researchers analyzed 714 banking mergers and acquisitions (M&A) in Europe from 1991 to 2005, focusing on their impact on bank operations post-transaction The findings revealed that while M&A activities were associated with a slight decline in return on equity (ROE), effective cash flow, and profit margins, they significantly enhanced cost efficiency within the banks.
Bank M&A and the Growth of Commercial Bank (GeZhaoqiang(2005))
The research conducted on the development of the commercial banking system and M&A activity highlights that mergers and acquisitions (M&A) are crucial for the growth of commercial banks The study, which focused on various banks in China, demonstrates that M&A facilitates the reform and modernization of the financial system, strengthens corporate governance, and enhances asset quality and risk management Furthermore, it contributes to the internationalization of banks and boosts their competitiveness on a global scale.
Mergers and acquisitions: The Path For Development of Vietnamese Enterprises (Nguyen Thi Ngoc Dung - Economic Faculty - University of East Asia)
Recent research highlights the dynamic landscape of mergers and acquisitions (M&A) in Vietnam, showcasing their significant positive impacts However, the study also identifies key barriers to successful M&A activities, including cultural attitudes, transparency and honesty issues, the legal framework, challenges in enterprise evaluation, and funding constraints.
M & A and cultural factors (MA Trinh Thi Phan Lan, MA Nguyen Thuy Linh - Ha Noi National University)
Cultural factors play a vital role in the success or failure of mergers and acquisitions (M&A) Effectively reconciling organizational cultures post-M&A is essential for the survival and growth of the newly formed entity.
- According to Miskin in “The economics of money, banking and financial market”: Banks are financial institutions that accept deposits and make loans
In "Bank Management and Financial Services" by Peter Rose, banks are defined through three key aspects: their economic functions, the services they provide to clients, and the legal framework that underpins their existence.
+ In terms of economic functions, banks play a role as a financial intermediary, who is considered as a bridge to transfer funds from the savers to the borrowers
Banks serve as comprehensive financial service providers, offering a diverse array of both traditional and modern services Traditional offerings include checking accounts, savings plans, and loans for individuals and businesses In contrast, modern services encompass insurance protection, security underwriting, and financial planning, reflecting the evolving needs of consumers.
THEORETICAL FRAMEWORK ABOUT BANK M&A
Review of Previous Work and Books
M&A Operations and Performance in Banking (Elena Beccalli, Pascal Frantz (2009))
A study conducted by two researchers analyzed 714 banking mergers and acquisitions (M&A) in Europe from 1991 to 2005, focusing on the effects of these transactions on bank operations The findings indicate that while M&A activities are associated with a slight decline in return on equity (ROE), effective cash flow, and profit margins, they significantly enhance cost efficiency within the banking sector.
Bank M&A and the Growth of Commercial Bank (GeZhaoqiang(2005))
This article explores the impact of mergers and acquisitions (M&A) on the development of commercial banking systems, highlighting that M&A is a crucial driver for growth in this sector Research conducted on various banks in China reveals that M&A has facilitated significant reforms in the financial system, improved corporate governance, and enhanced asset quality and risk management Furthermore, these activities have accelerated the internationalization of banks and bolstered their global competitiveness.
Mergers and acquisitions: The Path For Development of Vietnamese Enterprises (Nguyen Thi Ngoc Dung - Economic Faculty - University of East Asia)
Recent research highlights the significant surge of mergers and acquisitions (M&A) in Vietnam, emphasizing their positive impact on the economy However, the study also identifies key barriers to successful M&A in the country, including cultural mindsets, issues of transparency and honesty, an inadequate legal framework, challenges in enterprise valuation, and difficulties in securing funding for these transactions.
M & A and cultural factors (MA Trinh Thi Phan Lan, MA Nguyen Thuy Linh - Ha Noi National University)
Cultural factors play a vital role in the success or failure of mergers and acquisitions (M&A) Effectively reconciling the differing organizational cultures post-M&A is essential for the survival and growth of the newly formed entity.
Definition of bank M&A
- According to Miskin in “The economics of money, banking and financial market”: Banks are financial institutions that accept deposits and make loans
In "Bank Management and Financial Services" by Peter Rose, banks are defined through three key aspects: the economic functions they serve, the range of services they provide to clients, and the legal framework underpinning their existence.
+ In terms of economic functions, banks play a role as a financial intermediary, who is considered as a bridge to transfer funds from the savers to the borrowers
Banks serve as comprehensive financial service providers, offering a diverse array of both traditional and modern services Traditional offerings include checking accounts, savings plans, and loans for individuals and businesses In contrast, modern services encompass insurance protection, security underwriting, and financial planning, catering to the evolving needs of customers.
The legal foundation for banks in the USA is crucial, as they have been regulated and supervised by the Federal Government for over a century.
In Vietnam, the definition of bank and commercial bank are regulated in the law No.47/2010/QH12 of June 16, 2010 on Credit Institution:
“Credit institution means an enterprise conducting one, some or all banking operations, credit institutions include banks, non-bank credit institutions, microfinance institutions and people‟s credit institution
A bank is a type of credit institution authorized to perform a range of banking operations as defined by law Banks can be categorized into various types, including commercial banks, policy banks, and cooperative banks, each distinguished by their specific characteristics and operational goals.
A commercial bank is a financial institution that engages in a wide range of banking operations and business activities aimed at generating profit These operations encompass accepting deposits, extending credit, and facilitating payment transactions Additionally, commercial banks may partake in various other activities, such as foreign exchange trading and acquiring shares in other companies.
Diagram 1.2: Structure of credit institutions in Vietnam
M&A is abbreviation of “merger and acquisition”
According to Broc Romanek and Cynthia M Krus in their book "Mergers and Acquisitions" (Capstone Publishing, 2002), a merger involves the combination of two corporations where only one corporation continues to exist, while the other ceases to exist They also note that a merger is distinct from a consolidation, which involves the combination of two businesses into a new entity.
Policy banks and commercial banks often engage in consolidation, where multiple companies merge to form a new entity, resulting in the dissolution of the original companies and their stockholders becoming shareholders of the new organization In contrast, an acquisition involves one company, the buyer, purchasing the assets or shares of another company, the seller, with payment made in cash, buyer securities, or other valuable assets.
Mergers and acquisitions (M&A) are two key consolidation strategies in modern banking A merger involves the combination of assets from two or more independent firms to create a new legal entity In contrast, an acquisition occurs when one firm purchases a controlling interest in another, without integrating their assets or forming a single unit.
In their 2006 book "M&A from A to Z," Andrew J Sherman and Milledge A Hart define a merger as the combination of two or more companies, where the buying firm absorbs the assets and liabilities of the selling firm while maintaining its original identity In contrast, an acquisition refers to the purchase of specific assets, which may include a division, a plant, or an entire company.
In Vietnam, “merger”, “acquisition” and “consolidation” are three separate concepts However, in general, whenever “M&A” is recalled, those three words are considered as three indispensable operations
In Law on enterprises 2005, under the article 152, 153, “consolidation” and “merger” can be defined as follows:
Consolidation refers to the process where two or more similar companies merge to form a new entity This involves transferring all legal assets, rights, obligations, and interests to the newly formed company while simultaneously dissolving the original companies.
A merger occurs when one or more companies of similar nature, referred to as merging companies, consolidate into another entity, known as the merged company This process involves the transfer of all legal assets, rights, obligations, and interests from the merging companies to the merged company, resulting in the dissolution of the merging companies.
In Law on competition 2004, point 1, 2, 3 of article 17, three terms above are regulated as follow:
The merger of enterprises involves the transfer of all lawful assets, rights, obligations, and interests from one or more companies to another, resulting in the dissolution of the merging entities.
The consolidation of enterprises involves the transfer of all lawful assets, rights, obligations, and interests from one or more companies to create a new entity, resulting in the termination of the original companies.
The acquisition of an enterprise refers to the purchase of all or part of another company's assets, enabling the acquiring company to control or manage the operations of the acquired business.
In conclusion, all the basic concepts about M&A are defined in different ways but they can be understood as follows:
A merger refers to the process where two or more companies combine to form a single entity, resulting in the dissolution of the other companies involved This strategic move typically occurs through negotiations between the parties involved.
Motivations, principles and conditions for bank M&A
The significant rise in bank M&A deals can be attributed to various evolving factors that drive merger and acquisition activity Key motivations for these transactions include the pursuit of enhanced market power, which allows institutions to strengthen their competitive position and expand their influence within the financial sector.
Mergers and acquisitions (M&A) allow banks to expand their markets and enhance competitiveness by entering new geographical areas or broadening their product offerings Acquiring existing institutions can often be a faster, more effective, and cost-efficient strategy compared to organic growth When executed successfully, M&A can lead to increased market share and profitability, ultimately boosting the bank's competitive edge Additionally, diversification through M&A can provide access to complementary opportunities that strengthen the overall business portfolio.
Mergers and acquisitions (M&A) present banks with a strategic opportunity to diversify their investment portfolios For example, when a bank acquires a finance or leasing company, it expands its investment sectors, potentially leading to increased profits through enhanced synergies.
Mergers and acquisitions (M&A) are anticipated to create advantageous conditions for involved parties The newly formed entity aims to enhance both scale and scope, leveraging increased capital and a broader range of strategic products By merging, banks can achieve improved operational efficiency, as combined administrative and fixed costs are often lower than when operating separately Additionally, the collaboration of skilled managers from both entities can lead to the development of effective policies.
Mergers and acquisitions (M&A) are often driven by tax considerations, as they can serve as a tax shield for businesses A profitable company may acquire a loss-making firm to leverage the target's losses, thereby minimizing its tax liability Additionally, changes in government regulations or requirements can also influence M&A activity.
Mergers and acquisitions (M&A) in the banking sector can arise from new government regulations or policies, whether in a friendly or hostile manner For instance, if the State Bank of Vietnam (SBV) raises the minimum legal capital requirements, credit institutions lacking the capacity to raise additional funds may consider M&A as a viable solution Additionally, if the SBV encourages banks to engage in M&A activities, smaller banks with lower liquidity and profits, seeking to avoid bankruptcy, may proactively reach out to potential partners to facilitate M&A deals Understanding the principles of bank M&A is crucial for navigating these opportunities effectively.
There are five principles that have to be guaranteed throughout any bank M&A transaction as follows:
Bank participating in M&A will come into an agreement in settling rights and obligations among concerned parties in conformity with current provisions of applicable law
Bank participating in M&A must make sure not to affect rights and interests of their customers especially of each bank‟s depositors
Members of the Board of Directors, the Controller Committee, the General Director, and relevant individuals from banks involved in mergers and acquisitions (M&A) must ensure information security to maintain operational stability prior to the approval of the M&A plan by the appropriate authority.
Principle 4: Principle of information supply
During bank mergers and acquisitions (M&A), the Board of Directors must provide timely, accurate, and consistent information about the bank's financial condition, organization, and operations to all involved parties and relevant organizations, ensuring transparency and fairness throughout the process.
Principle 5: Principle of making decision on the M&A
The competent body of banks participating in M&A will ratify the decision on the M&A under the condition, proceedings of meeting and voting in line with current provisions of applicable law
Banks engaging in M&A transactions are generally exempt from restrictions on economic concentration under the Law on Competition, provided their combined market share does not exceed 50% in the relevant market However, exceptions apply if one or more parties involved in the transaction face potential dissolution or bankruptcy, or if the economic concentration promotes export expansion, socio-economic development, or advances in technical and technological progress.
Moreover, it is compulsory for them to have Merger Plan/ Acquisition Plan including required contents The contents of the Plan, at least, consist of
Name, address, electronic information website of the entities participating in the M&A
Name, address and phone number for contact of the Board of Directors‟ member
Controller Committee‟s members, General Director participating in the M&A
Summary of the financial and operation situation of the entities participating in the M&A
Charter capital before the M&A of the entities and charter capital of the merging/acquiring bank after the M&A
Lists of major shareholders or owners of the merging/acquiring bank after the M&A
Rights, obligations of the entities participating in the M&A
Responsibility of the parties involving in the M&A for expenses arising during the M&A
Solution for the case where one or several entities participating in the M&A unilaterally cancel the M&A agreement
Finally, after the M&A, merging/acquiring bank must ensure the minimum charter capital level to be equal to the legal level in accordance with current provisions of the applicable law.
Bank M&A process
1.4.1 Parties involved in the process a The first group includes banks, finance leasing company, and cooperative acquire institutions; and they are entities that directly merge/acquire or be acquired b The second party is The State Bank which is the entity having power to approve the bank M&A activity c The last party is consultancy expert who may be employed by banks participating in M&A transaction and it plays a role of advising for merging/acquiring and merged/acquired parties A consultancy expert shall be required to fully satisfy following conditions:
To be an organization which is authorized to supply consultancy service in finance and banking area
Not to simultaneously provide advices to banks participating in the M&A transaction
The Board of Directors of banks involved in the M&A transaction must confirm that there are no financial relationships that could lead to conflicts of interest with other participating banks.
According to Vietnam tradition and law, a M&A deal can be conducted via these following four steps:
Researching Negotiating Approval Closing a Step 1: Researching the need for M&A deal
The M&A process for the merged or acquired party begins with the initial concept proposed by owners or managers This is followed by a thorough assessment of the project's feasibility, which includes analyzing financial data, evaluating liquidity, and determining the potential for integration.
The M&A process begins with senior leaders proposing the initial idea, followed by an in-depth feasibility study that evaluates the development plan, financial status, and strategic objectives of the bank.
The process culminates with the Executive Board's commitments, which are reflected in the allocation of necessary resources and budget for the project Once both parties agree on the importance of the M&A, the merged or acquiring bank can proactively reach out to potential partners to arrange meetings The next step involves negotiating and finalizing the M&A contract.
Following the Boards' commitments, the two parties will convene to negotiate essential terms and conditions With the assistance of a consultancy expert, they will assess the banks' assets, discuss pricing, and determine the organizational structure and operational framework of the prospective new entity.
As soon as negotiating all aspects successfully, they will sign the M&A contract and rewrite all these terms and conditions into M&A plan c Step 3: Approval of authorities
In Vietnam, only if SBV approves twice can M&A transaction occur The former is the approval of principle of M&A and the latter is the approval of M&A
Once both parties finalize their agreement, they must notify the competition management agency in writing Subsequently, they will prepare the necessary documents, including an application file for M&A approval in principle, and submit these to the Inspection Agency and the Bank Supervision division of the State Bank.
Within 90 days once the Governor of the State Bank sign to approve the action in the principle in writing, banks will collect the opinions of competent authorities which have a right to pass the supplement content of the project and other relating matters; and together prepare the documents to send to the State Bank to review and approve the M&A deal d Step 4: Implementing and closing the deal
If the Government approves the bank M&A, the bank must finish the procedures of modification content of permit for establishment and operation, publishing announcement to finish the process
Chapter 1 of the thesis presents a comprehensive overview of mergers and acquisitions (M&A), detailing key concepts, implementation methods, and the associated advantages and disadvantages This foundational chapter will support the subsequent sections of the thesis, and it references several key texts on M&A to enhance the core discussion.
Summary
This chapter is crucial to the thesis as it offers a concise overview of recent M&A activities in Vietnam's banking sector It begins by presenting the current landscape of the banking system to provide a fair assessment of the M&A trends The chapter details significant bank M&A events, particularly highlighting key cases from 2013, and concludes with predictions regarding the future trajectory of bank M&A activities.
2.1 Overview of banking system in Vietnam
Vietnam's banking sector has seen significant growth, with total domestic assets more than doubling from VND 1,097 trillion (USD 52.4 billion) in 2008 to VND 2,690 trillion (USD 128.6 billion) by 2012 This upward trend was projected to reach VND 3,667 trillion (USD 175.4 billion) by the end of 2013 The sector comprises four main types of institutions: six state-owned commercial banks (SOCBs), 37 joint stock commercial banks (JSCBs), five joint venture banks, and five wholly foreign-owned banks.
Vietnam's banking sector is poised for significant growth in Asia over the next few years, driven by ongoing economic expansion, increasing household incomes, and low banking service penetration However, the global economic crisis of 2008-2009 adversely affected many economies, including Vietnam's Despite maintaining moderate economic growth, the country faces several challenges and difficulties that need to be addressed.
THE SITUATION OF BANK M&A IN VIETNAM
The reality of M&A activity in banking sector in Vietnam
In 1992 and 1993, Ho Chi Minh City witnessed its first bank merger, marking a significant event in the financial landscape This period also saw several businesses, including Thanh Huong Perfume, Dai Thanh, and Xacogiva, facing insolvency and ultimately leading to bankruptcy.
Joint Venture Banks Joint Venture Banks‟ name
Vietnamese and foreign joint venture bank partners) Indovina Bank
The dissolution of cooperative credit institutions and people's credit funds in Vietnam during 1989-1990 led to significant changes in the banking landscape, prompting remaining institutions to merge and form the first joint-stock commercial banks in Ho Chi Minh City, excluding Eximbank, Saigon Bank, and HDB By 1991, Vietnam had only nine commercial banks, including four state-owned banks, but this number surged to 56 by 1993, comprising 41 joint-stock commercial banks Notable partnerships emerged during this period, such as Vietinbank with Cathay United Bank (Taiwan), Agribank with Siam Commercial Bank (Thailand), Vietcombank with First Bank Korea, and BIDV with both Public Bank (Hong Kong) and VTB Bank (Russia).
Established on December 22, 1991, Saigon Thuong Tin Commercial Bank (Sacombank) began operations following the transformation of the Economic Development Bank Go Vap and the merger with three cooperative credit institutions: Tan Binh, Thanh Cong, and Lu Gia.
- Join-Stock Commercial Bank Mekong Development, formerly the rural commercial bank of My Xuyen, established in 1992 with its headquarters located in the city of Long Xuyen, An Giang province
- Gia Dinh Joint-Stock Commercial Bank was established in 1992 on a consolidated basis of two cooperative credit institution Bach Dang and Ky Thuong
- Tan Viet bank founded in 1992 on the basis of the merger of Thong Nhat (Tan Binh District) and Phu Dong (Phu Nhuan District) cooperative credit institutions
- De Nhat Bank was established in 1993 on the basis of conversion cooperative credit institution District 5
- Que Do Bank established on the basis of conversion Que Do cooperative credit institution
- There is also the formation of some other banks such as South Asia, Dai Nam, Nam Do, Hoa Viet and Southern,
During the seven-year period from 1997 to 2004, the bank mergers occurred frequently mostly between rural JSBs and urban JSBs as few cases following:
In 1997, Southern Bank merged with Dong Thap Commercial Bank, followed by the acquisition of Dai Nam Bank in 1999 In 2000, the bank expanded its portfolio by purchasing Dinh Cong People's Credit Fund in Thanh Tri, Hanoi This growth continued with the merger of Chau Phu Rural Commercial Bank in 2001 and culminated in the merger with Cai San Rural Commercial Bank in Can Tho.
- Sacombank merged successfully with Thanh Thang c in 2001
- Bank of East Asia made a merging agreement with Tan Hiep Rural Commercial Bank (Kien Giang) in 2004
During the specified period, Southern Bank distinguished itself by merging numerous rural banks, setting it apart from its competitors However, the outcomes of these mergers, along with the underlying reasons and motivations for the M&A activity, remain inadequately communicated.
2.2.2 Bank M & A activity after 2008 period and the involvement of foreign banks in Vietnam
Foreign investment in Vietnam has a significantly positive impact, particularly in the banking sector, where 13 commercial banks currently have foreign capital Notably, these banks are generally not categorized as weak, with most of them belonging to the top tier of financial institutions.
Table2.2.1: Foreign banks as strategic shareholders of Vietnamese commercial banks
Foreign investors acquiring shares in Vietnamese credit institutions are governed by Decree No 69, issued on April 20, 2007 This regulation outlines the maximum ownership limits for individual investors, strategic partners, and the overall foreign ownership cap within these institutions.
In recent years, the Vietnamese government has recognized the significance of foreign resources in restructuring the country's credit system To facilitate this, it has launched 254 projects aimed at promoting foreign investment and collaboration in the financial sector.
Banks Investors Ratio of share hold
Vietcombank Mizuho Corporate bank Ltd
Eximbank Sumitomo Mitsui banking corporation
Vietnam encourages organizations and individuals to invest and collaborate with domestic credit institutions Additionally, it aims to stimulate foreign credit institutions to contribute capital through share purchases and mergers or acquisitions of struggling credit institutions, all while adhering to legal regulations.
The Investing Management Department is advocating for amendments to Decree 69, addressing two key concerns of foreign investors Firstly, the amendment would allow foreign strategic partners of Vietnamese banks to own up to 20% of shares without needing government approval, increasing the previous limit of 15% Secondly, while the current regulation caps total foreign ownership at 30% of a credit institution's charter capital, the revised decree would permit the government to allow foreign investors to exceed this limit in specific restructuring scenarios, as outlined in the 254 projects under Decree No 68.
The recent amendment opens up greater opportunities for foreign investors to deepen their involvement in the Vietnamese market, particularly in the restructuring of the country's banking system Foreign investors can now voluntarily purchase shares and select partner banks, leading to notable achievements such as enhanced financial capacity through increased charter capital and surplus equity Additionally, governance capabilities have improved significantly, facilitated by the restructuring of banking operations, consultancy, and training from foreign credit institutions, as well as the expansion of business activities.
The draft regulations emphasize that, in addition to managing ownership ratios, share purchases must not compromise the safety and stability of Vietnam's credit institution system or lead to monopolistic practices that diminish competition Furthermore, it specifies that foreign individual investors are permitted to acquire shares only in joint-stock credit institutions that are listed on the Stock Exchanges.
Measuring the impact of safety and stability on credit institutions is challenging in practice Many struggling credit institutions are looking to boost their equity by selling shares to address critical issues like bad debt and liquidity However, the current domestic capital market presents significant obstacles, making it difficult to find internal capital flows As a result, attracting foreign capital flows has become a more appealing option for these institutions.
Many foreign organizations believe that the current ownership ratio of the State Bank is unappealing and suggest increasing it to 51% or 65% Achieving this ownership level would grant foreign banks the ability to influence development strategies, including the management of non-performing loans (NPLs) in domestic banks With their extensive experience and expertise in assessing bad debt, these foreign banks could also provide the necessary capital to help eliminate NPLs within the domestic banking sector.
2.2.3 Some banks M&A deals in Vietnam from 2011 to 2014 a SCB – Vietnam Tin Nghia – FICOMBANK
Situation of the bank before the merger
By the end of 2010, SCB emerged as one of Vietnam's largest joint-stock commercial banks, boasting a substantial charter capital of VND 4,184 trillion The bank's total assets exceeded VND 60 trillion, with total deposits reaching approximately VND 35 trillion and loans surpassing VND 33 trillion.
Conclusion
Chapter 2 analyzes the operations of commercial banks in Vietnam in recent times and competitiveness of the banking sector Although Vietnam's commercial banks have been many efforts and achieved significant achievements but banks need to further enhance its operational capacity in the context of increasingly fierce competition if they want to survive It is also recognized the motivation of M&A of banks to take steps to prepare as this is an inevitable and necessary trend in the context of international economic integration.
RECOMMENDATION TO ENHANCE BANK M&A IN
Recommendation for State Bank
3.1.1 Implementing of restructuring the banking system in Vietnam and orienting M&A activity
The State Bank of Vietnam (SBV) is tasked with creating a comprehensive 10-year development plan for the banking system to ensure stability and guide future growth This strategic plan will facilitate the establishment of new banks and support mergers and acquisitions (M&A) within the sector Additionally, it aims to provide the Central Bank with the necessary legal framework to effectively regulate and manage banking operations.
The Central Bank must foster an environment that enables Vietnamese commercial banks to operate competitively within the market, encouraging their growth and development both deeply and widely Additionally, the State Bank of Vietnam (SBV) should consider strategies for reducing the number of banks through restructuring, potentially merging them into 5-10 larger financial institutions This approach aims to create robust banks with sufficient financial resources to effectively compete with foreign banks.
The State Bank of Vietnam oversees mergers and acquisitions (M&A) not just as administrative decisions, but also provides essential guidelines for banking operations, encompassing capital size, human resources, technology, business strategy, capital adequacy, income structure, and provisioning.
Stronger banks are poised to thrive and expand, while weaker banks recognize the necessity of voluntary mergers to meet market demands This consolidation aims to create larger institutions that enhance system stability and competitiveness, ultimately positioning them to engage more effectively in the global market.
3.1.2 Completing the legal framework to support banking operations
The Central Bank must reassess and align regulations governing monetary and banking activities with international commitments, including the Vietnam-US Agreement and WTO accession obligations Key areas of focus should include credit, investments, foreign exchange, capital mobilization, and payment systems, alongside the management and supervision of banking services and the licensing of credit institutions to meet international standards while accommodating Vietnam's unique context Additionally, it is crucial to issue circulars that serve as guidance for existing decrees to ensure the banking system operates consistently and stably These amendments should be prioritized and consider future developments in derivatives, electronic banking, and cross-border banking services.
The State Bank is urged to strengthen the enforcement of laws governing monetary and banking activities, ensuring that commercial banks in Vietnam adhere to legal regulations more effectively.
3.1.3 Enhancing supervision capabilities of the State Bank
To enhance the Vietnamese banking system, the Central Bank should develop a modern monitoring system based on existing State Bank inspections, ensuring compliance with international banking supervision standards Additionally, a reform of current accounting practices is essential, requiring all banks to adopt international accounting standards fully The Central Bank must also update independent auditing regulations to align with both local realities and global practices.
Improving management efficiency and bolstering risk management systems, including liquidity, market, interest rate, foreign exchange, and credit risks, are essential for enhancing the operational capacity of the Credit Information Center (CIC) to support commercial banks effectively.
3.2 Recommendation for Commercial Banks
Increasing financial capacity
Commercial banks should enhance their chartered capital, ensuring that increases are linked to specific projects and reasonable disbursement plans Banks that struggle to raise capital may need to explore mergers and acquisitions or consolidation to improve their financial strength and competitiveness, thus mitigating the risk of bankruptcy Meanwhile, efficient banks can consider tapping into foreign securities markets to raise funds and broaden their market presence.
To ensure operational safety, banks must prioritize key criteria such as maintaining a robust capital adequacy ratio, managing equity effectively, and monitoring the affordability ratio for liquidity Additionally, it is crucial to impose limitations on lending and commercial guarantees, as well as to avoid using short-term funds for medium or long-term loans.
To address impaired loans, it is essential for banks, particularly the State Bank, to achieve full resolution Reducing bad debt should be coupled with the establishment of robust control mechanisms and effective monitoring of banks' credit quality.
Developing products and banking services
Vietnamese commercial banks are expected to enhance credit quality alongside credit growth by adopting prudent lending practices in securities, real estate, and manufacturing sectors Additionally, strengthening project evaluation and capital management capabilities will be essential for effective lending.
To enhance service development, it is essential to maintain high quality and safety standards for both traditional and innovative services, including automatic payments, discounts, e-banking, factoring, credit cards, overdrafts, and derivatives, while ensuring that procedures remain simple and user-friendly.
Banks should continuously assess customer needs to offer tailored products and services at various stages of their financial journey It is essential for each bank to develop an effective marketing strategy that enhances promotional efforts, including advertising, to raise awareness of their offerings This approach aims to engage customers and encourage them to utilize banking services.
Improving the quality of human resources
Enhancing the quality of human resources is essential for banks in both the short and long term Implementing practical training programs is crucial to develop and elevate the professional skills required in modern banking.
To enhance their competitiveness, commercial banks in Vietnam should actively recruit and promote banking experts from reputable organizations and countries globally A well-structured wage mechanism that aligns with the skills and capabilities of employees is crucial for attracting top talent Additionally, state-owned commercial banks must implement incentive systems that reward performance outcomes to effectively motivate their workforce.
Leaders must receive training in governance skills and supervision of bank operations, along with gaining extensive knowledge in risk management, forecasting, analysis, and problem-solving The Board of Directors and Executive Board should maintain a clear business orientation and a long-term strategic vision aligned with socio-economic development.
Constructing and developing brand
Banks must prioritize branding as it represents a crucial intangible asset that distinguishes them in the market In Vietnam, commercial banks emphasize building customer loyalty, ensuring familiarity in transactions, and fostering a strong corporate culture to effectively compete against foreign banks.
Effective branding for banks should emphasize product and service quality, transaction safety, operational transparency, and efficiency It is essential to foster a positive service attitude, adeptly manage situations, and uphold social responsibility to build trust and loyalty among customers.
Strengthening the association between domestic banks
Competition plays a crucial role in enhancing the operational efficiency of domestic banks It is vital that this competition is constructive, fostering collaborative growth among banks rather than hindering one another The goal should be to maintain a stable market share in the face of foreign bank competition.
Banks should continue to strengthen the link by connecting the card payment system, co-sponsored lending
To enhance their financial strength and market presence, small banks should leverage financial support and technology from shareholders and foreign banks, enabling them to consolidate their position, strengthen their brand, and expand their services effectively.
Customer information should be explicit and assistance between banks is necessary so that risk management can be better
To enhance the stability of capital operations, banks should collaborate rather than compete in increasing interest rates The Banking Association should act as a facilitator, fostering connections between banks to promote a more cohesive financial environment.
A solution that banks around the world are carrying out in order to create associating power is bank M&A
Vietnamese commercial banks, particularly those struggling with viability, must undertake essential preparatory measures for mergers and acquisitions (M&A) Accurately assessing their competitiveness and growth potential is crucial for evaluating potential merger opportunities With a proactive and well-prepared strategy, along with a compatible partnership, banks can achieve effective synergy, enhancing stability and competitiveness within Vietnam's banking sector.
Chapter 3 of the article presents key recommendations aimed at enhancing the operational capacity of Vietnamese commercial banks to boost their competitiveness and facilitate advantages in mergers and acquisitions The thesis acknowledges that the trend of mergers and acquisitions in the banking sector is an inevitable consequence of international economic integration.
The thesis highlights that banks are encountering significant challenges and intense competition during integration, necessitating the merger or acquisition of weaker banks by stronger ones, which is a fundamental principle of a market economy.
Overall, banking system in Vietnam has experienced a bustling period of M &
Mergers and acquisitions (M&A) can significantly impact the banking sector, often leading to more benefits than drawbacks for banks While the immediate effects of M&A are evident, it is crucial to consider the long-term implications and challenges that arise post-acquisition.
The article identifies the challenges and limitations faced by the government in macro management and the commercial banking sector It offers tailored recommendations, including macro solutions for the Central Bank and micro solutions for commercial banks, to enhance competitiveness Additionally, it emphasizes that mergers and acquisitions (M&A) are likely to occur due to the limited internal resources of Vietnamese commercial banks compared to their foreign counterparts, which benefit from more favorable development conditions.
Vietnam is intensifying merger and acquisition activities in its banking sector to alleviate the burden of bad debt on the economy The central bank has announced plans to implement significant measures to address the challenges posed by weak banks that lack recovery potential.
Vietnam is implementing significant reforms in its banking sector and pursuing broader initiatives to enhance its business environment through state-sector privatization and increased foreign investment across various industries As the economy gains momentum, Vietnam is emerging as a compelling investment destination for investors involved in diverse sectors, including garment manufacturing and high-tech products Additionally, the country's growing consumer market is attracting retail businesses globally, eager to capitalize on its potential.
3 Limitations of the study and suggestions for further study
During the implementation process of thesis, I has studied many documents, books, however, personal limited capacity, secret nature of M & A activity and limited time by no means incidentally coincides inevitable shortcomings
If there are more opportunities, I will overcome the limitations of this thesis in the further studies.
Recapitulations and Concluding Remarks
The thesis reveals that banks are encountering significant challenges and intense competition amid integration, leading to the necessity for weaker banks to merge or be acquired by stronger ones This principle is fundamental to the functioning of a market economy.
Overall, banking system in Vietnam has experienced a bustling period of M &
Mergers and acquisitions (M&A) can significantly impact the banking sector, often leading to more gains than losses for banks overall While the immediate effects of M&A are evident, it is crucial to consider the long-term challenges that arise post-merger Addressing these issues is essential for ensuring the continued success and stability of the banking system.
The thesis identifies key challenges and limitations in the macro management of government and commercial banks, offering tailored recommendations for both the Central Bank and individual banks to enhance competitiveness It emphasizes the necessity for innovation within banks and discusses the potential for mergers and acquisitions (M&A) driven by the limited internal resources of Vietnamese commercial banks compared to their foreign counterparts, which benefit from more favorable development conditions.
Vietnam is rapidly advancing merger and acquisition activities within its banking sector to alleviate the burden of bad debt on the economy Monetary regulators have identified this debt as a significant challenge, prompting the central bank to implement decisive measures against weak banks that lack recovery potential.
Implications
Vietnam is actively reforming its banking sector and implementing liberal policies to enhance its business environment, including the privatization of state-owned enterprises and increased foreign investment across various sectors As the economy shows signs of recovery, Vietnam is emerging as a prime investment destination for manufacturers of garments and high-tech products Additionally, the country's growing consumer market presents lucrative opportunities for retail businesses globally.
Limitations of the study and Suggestions for Further Study
During the implementation process of thesis, I has studied many documents, books, however, personal limited capacity, secret nature of M & A activity and limited time by no means incidentally coincides inevitable shortcomings
If there are more opportunities, I will overcome the limitations of this thesis in the further studies.