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MANY EXPECTED M&A DEALS OF SMALL BANKS

MANY EXPECTED M&A DEALS OF SMALL BANKS

Saturday 19, 10 2019
After new developments in Bao Viet bank, the market is still expecting more M&A deals of banks, especially those of small-scale ones.
The Resolution of the Board of Directors of CMC Technology JSC (CMC) said that the Board of Directors authorized Chairman and General Director Nguyen Trung Chinh to complete the transfer of all Bao Viet Bank’s shares.

According to the bank's report, CMC owns 10.3% of the capital, equivalent to more than 324 billion VND at face value, as of the end of June 2019. The other two major shareholders are Bao Viet Group (owning 49.5%) and Vinamilk (14%). It is still not clear how much CMC will divest and to which partners.

This is an investment of CMC in the trend of economic groups contributing capital to establish banks in the period 2008-2009. Recently, a member company of Samsung Group (Korea) has completed the investment to acquire an additional 25% of CMC shares (total of nearly 30%), with the same goal of promoting technology strategy. Therefore, it is understandable that CMC has more important "motivation" to close the deal that it has had for many years with a small bank with the chartered capital of VND3,150 billion.

CMC divests in the context of business results of Bao Viet Bank going down. According to the reviewed financial report in the first half of 2019, the bank's profit after tax was only over VND 10.6 billion, down 42.4% over the same period. Total assets of the bank reached VND 52,159 billion, outstanding loans reached VND 24,650 billion, respectively decreasing by 6.7% and 3.1% compared to the beginning of the year.

Notably, the decline in business results not only occurred at Bao Viet Bank but also many other banks. For example, after-tax profit of Viet A Bank in the first 6 months of this year was only VND 65 billion, a decrease of nearly 26% over the same period, partly because of the net interest income (the main source of income of banks) decreased by 15.2% over the same period.

In the case of National Citizen Bank (NCB), the consolidated pre-tax profit increased by nearly 32% over the same period, however, the main contribution was due to the decrease in provision expenses (over 40%), while net operating profit before provision expenses decreased by nearly 31%.

Not only is it difficult to operate in the context of increasingly fierce business, in the past few years, but the senior leadership position in some small banks has also been constantly changing. For example, Bao Viet Bank has appointed Ms. Nguyen Thi Thanh Huong to be the Acting General Director on September 13. This position has been transferred continuously for many years, with the most recent appointment happened in November 2018. Similarly, in July recently, NCB Bank officially appointed the Board Member, Deputy General Director to serve as General Director.

Under the restructuring scheme of credit institutions system for the period 2016-2020, besides weak banks and specially-supervised ones, small banks are also one of the important ones that need to be restructured.

Statistics show that there are about 9 banks with the chartered capital of less than VND4,000 billion, among which are the two weak banks which are restructuring: Construction Bank and Global Petroleum Bank (GPBank).

Besides banks that are under special supervision, some remaining banks are allowed by the managing agency to “self-restructure”. According to experts, no matter which restructured plan they chose, banks all need to have more real cash flows.

Therefore, banks’ owners need to either look for new shareholders or use their own money to increase the registered capital. The last option would be to merge with other banks. Almost every bank has proposed capital increasing plans in recent years, but none of them has accomplished the task.

Bao Viet Bank is also a hotspot among those that need reconstruction. One reason for this is because it will have to gradually reduce the rate of ownership at the bank (The Law on Credit Institutions stipulates that the limited ownership of an economic organization is 15%). Therefore, the recent capital developments of CMC are expected to be one of the new signals of the M&A process of Bao Viet Bank.

Recently, there have also been new information on the M&A market for small and weak banks. For example, Dong A Bank is going to hold the first General Meeting of Shareholders since it was put under special supervision in 2015. This event is estimated to bring new information regarding the situation of the bank. Before that, both the 100% state-owned banks under restructuring, Ocean Bank and Construction Bank, had foreign partners asking to purchase their shares.

It can be said that the market recorded more new signals in the context of the M&A situation of banks still taking place very slowly. Currently, the expected deal is that of PGBank merging with HDBank, which had been approved by the policy since early of 2019 but so far has not taken place yet.
Categories
Business M&A

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