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Bank M&A returns

Bank M&A returns

Friday 18, 10 2019
Vietnamese banks in particular and its economy in general is expected to benefit considerably from the rising trend of bank M&A.
Domestic bank mergers and acquisitions (M&A) continue to attract attention by a number of recent deals in the context of foreign investment flowing into Vietnam.

M&A in which banks?

BIDV’s share price has increased by nearly 6% since the beginning of August 2019 after the deal of selling 15% of its equity to the foreign strategic investor KEB Hana Bank (Korea) was approved on July 22, 2019. From the end of May 2019,  BIDV’s share price has increased by 20%.

Vietcombank, in early 2019, also successfully sold over 16,6 million to its strategic shareholder  Mizuho and more than 94,4 million, equivalent to 2,55% of Vietcombank’s share, to GIC Private Limited (Government of Singapore Investment Corporation). Given the approved private share placement and the fact that merely 2,5% was sold to GIC, Vietcombank plans to issue 6,5% of share equity in the following months of 2019 to foreign investors.

The Military Bank (MBBank) would also sell 7,5% of its capital to foreign investors in 2019, issuing 123 million-worth new shares and sell 38,9 million treasury shares. MBBank is scheduled to offer shares to single or multiple foreign investors who do not necessarily be its strategic shareholders.

Banks which are vulnerable in their restructuring period also have the opportunity to make use of the current M&A wave. Ocean Bank is entering its final stage in its M&A deal with an Asian bank. Meanwhile, the J Trust Corporation of Japan says that it has spent time exploring and would like to engage in the restructuring process of Vietnamese weak credit organizations. The cooperation notes that it would like to buy the Construction Bank (CBBank).

Benefits and Practicability

In the context of the inflow of both direct and indirect foreign investment, M&A deals in general and banking in particular are gaining advantages. Statistics show that during the first 7 months of 2019, there were 4.387 deals of capital contribution and shareholding purchase by foreign investors. The total capital contribution value was 8,52 billion USD, increasing by 77,8% compared to the same period in 2018. More notable, in the last two years, Japanese and Korean investors tend to invest in finance – banking enterprises in Vietnam.

From the recipients’ stand, to the group of weak banks, the M&A trend would facilitate the recovery process of  each bank in particular and the restructuring process of the bank system in general. Although various restructuring solutions have been offered and implemented, obviously, the most important factor is the adequate investment to revive these banks.

Three aforementioned deals (BIDV, Vietcombank, and MBBank) are only expected to gain 2 billion USD in the final months of 2019.

To the state’s commercial banks, especially the joint-stock commercial banks which are facing difficulties concerning capital, selling capital share to foreign investors not only increases its capital to ensure business development demand but also boosts their competence with the equipment of foreign technology, management, and strategies.
 
Furthermore, in the context of decreasing foreign currency funds, receiving investment from foreign organizations would help banks in improving foreign currency funds, facilitating the business development activities such as foreign currency loans, foreign exchange business. The aforementioned M&A would also contribute a considerable foreign currency capital to the economy, stabilizing domestic exchange rates given the current global fragile foreign exchange situation.

To the economy, M&A is expected to improve the efficiency of the banking-finance sector, limit cross-ownership, diversify shareholders, make use of financial resources, experience, and manage foreign financial organizations.

The trend of strong inflow of foreign investment shows the stable and long-term development potential of Vietnam, which is of critical importance given the context of rising global economic instability when facing the risk of trade wars and economic recession.
 

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