Banking trends in Vietnam

Main movements in banking industry in Vietnam: M&A, localization, online banking service, etc.

Re-structuring (Merge and Acquisition)

Economic uncertainty creates a prime time for merger and acquisition (M&A) deals in the banking industry, said an industry expert. Merger and acquisition (M&A) in banks will be boosted in the next five years as part of efforts to overhaul the entire banking system and speed up the formation of one to two regional-class commercial banks in Vietnam.

The world has witnessed many recent M&A deals, which can take place within a country or across international borders, among financial institutions and banks of various scales
“A common characteristic is that this activity seems to become stronger and occur on a larger scale in periods of increasing economic crisis.” For example, in the U.S., during the economic down, there was a series of big mergers, like the $50 billion deal between Bank of America and Merrill Lynch, in which the former acquired the latter.
The move targets to stabilize liquidity for new banks; rationalize their operations and improve administrative competence without hampering monetary policies.

Recently, the central bank leader signaled that he would speed up the bank restructuring process. It is expected that additional five to eight banks will be merged this year.


“Most recently, the economy witnessed M&A deals related to Saigon Thuong Tin Commercial Joint Stock Bank to Sacombank, the merger of the Hanoi Housing Commercial Joint Stock Bank to Saigon-Hanoi Commercial Joint Stock Bank, and the merger of three banks, Ficombank, Tin Nghia Bank and Saigon Commercial Bank (SCB) into a new one bearing the name of the last one.”
Japan's Mizuho Financial Group purchased 15 % stake in Vietcombank, Vietnam’s largest listed bank, opening up opportunities for more M&A deals between Vietnam and Japan in the coming time. Experts forecast that there will be more M&A contracts between Vietnamese banks and foreign partners.

Albert Ng, chairman of Ernst & Young China suggested Vietnamese banks consider M&A as good chances for them to improve administrative competence, learn about modern technology and widen scale of services. Under the Government’s national banking restructuring project, banks are encouraged to merge with others or with healthy credit institutions.

However, this may lead to many different types of risk to the economy such as creating scarcity and driving up prices if bankers unite with each other to dominate the financial market or control the currency trading, interest and exchange rates or to store foreign currency on a large scale.
The national law on credit institutions currently regulates a limit on the percentage share of ownership to minimize such unhealthy activities and prevent any individual or organizations from obtaining the right to govern a bank. It states that an individual shareholder may not own more than 5% of the charter capital of a credit institution, while institutional shareholders may not own more than 15%of the charter capital of a credit institution, except in some special cases. In addition, shareholders and their relevant individuals may not own over 20 percent of the charter capital of a credit institution.

“As a result, one or a group of individuals and organizations can, through their “backyard” companies, both directly and indirectly own shares/charter capital in a bank, so the circumvention in ownership percentage is often hidden behind crisscross ownership relationships.”

“Cross-ownership should be granted to an independent intermediate or prioritized for foreign investment from overseas financial institutions and international banks.” In addition to solving the problem of cross-ownership, state agencies should further improve existing regulations related to M&A activities and banking takeovers, including regulations limiting share ownership percentage.

Localization of foreign banks in Vietnam

“Discrimination” of domestic and foreign banks has been eliminated. The concept that foreign banks only server foreign business is out of date today. Foreign branches are pushing their targets to reach not only domestic entrepreneurs but also local individuals. By setting appropriate policies to the local market, such as more promotion to customers, credit and deposits policies, these banks are stepping closer to its local customers.

Examples of Hong Leong Bank, HSBC and ANZ are clear evidences for the trend. By decrease interest rate in housing loans, consuming loans to lower than state’s banks’ rates, these banks are making more impressive expansion on the domestic market. Hong Leong Bank offer prosperity collateral in housing loans with interest rates at 0.88%/ year in 3 first months. HSBC applies the rates at 9%/ year in 3 first months for individuals. ANZ suggests the rate for hosting loans at 12%/ year in the first month.

Opening more branches in most industrial zones, focusing on retails banking in order to get closer to customers are what most banks are doing in their expanding plans. Trading trends seem more promising to those banks in the unstable economic situation.

To eliminate long-term liabilities

Dealing with long- term liabilities is one of the priority goal in 2013 of all banks. Despite the rate is decreasing, the amount is still enormous to the banking industry. Another solution to keep the interest rate from decreasing credit is to charge service fee. Internet banking users now experience new promotion packages and most convenience from banks. The number of user has gone up 35% compare to 2010. Some other forms will be developed to meet the shopping trends in communities: Home banking and Mobile banking, e- payment.

By Nguyễn Oanh on Jun 19, 2013 5:56:02 PM

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