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The case of JTrust conglomerate from Japan recently joining the restructuring of Construction Bank (CBank) has raised the possibility of cross-border bank M&A accelerating the speed of banks reorganising in Vietnam with the government’s support.
JTrust has announced that they have carried out intensive research to understand the restructuring process of CBank, according to Nobiru Adachi, director of JTrust Asia. They also propose some supportive actions from the Vietnamese government and the State Bank of Vietnam (SBV).
|Construction Bank (CBank) is on the cusp of restructuring|
According to Deputy Prime Minister Vuong Dinh Hue, the Vietnamese government would like to co-operate with clients who could boost the restructuring process of CBank and alleviate Cbank’s financial hardships.
The government guarantees to provide favourable conditions to investors who have strong governance ability and financial capacity. The discussion is still underway, yet the outlook seems positive thanks to Jtrust’s diverse experience in dealing with weak banks.
Deputy Prime Minister Vuong Dinh Hue at Vietnam M&A Forum 2018, co-organised by Vietnam Investment Review and its partner
With activism rising across the industry, the number of investors is no longer limited to some players from a particular country like Japan.
Richard F. Chandler, founder and chairman of Clermont Group, has expressed his fondness for the emerging Vietnamese financial market. The overseas group is recognised for its strong financial capacity along with advanced technology and skilled labour force.
Another company from Thailand, Srisawad Corporation, has also offered approximately $22.8 million to acquire Agribank Leasing Company No.1 (ALC I), a unit under the control of Vietnam Bank for Agriculture and Rural Development (Agribank).
Ocean Bank and GPBank are the apples in the eyes of foreign financial institutions’ eyes despite their huge holdings of non-performing loans and poor business performance.
Foreign investors are utilising M&A to add clients, market share, and already existing products, while also expanding their capabilities in technology and data.
On the other hand, the Vietnamese government is making substantial progress in drawing up its bank restructuring strategy and also welcomes foreign firms to join the process.
However, challenges still colour the landscape since the changing regulatory environment is considered one of the biggest issues of the game.For instance, the ownership ratio epitomises one of the legal and institutional barriers for foreign investors acquiring weak domestic banks. The foreign ownership limit could exceed 30 per cent on a case-by-case basis, subject to the prime minister’s approval.
|Ocean Bank, one of the primary targets of foreign investors. Photo: Duc Thanh|
Additionally, human resources also play an important part. Both changes in human resources and unfamiliarity with Vietnamese culture could impede the transformation after a foreign investor joins. Strategies must be adapted to fit the country’s circumstances to ensure success at the end of this complex.
The banking sector is reshaping itself dramatically to operate in this time and age, and this will require both domestic and international banks to adopt a fresh approach to deal-making.
Looking at the bright side, Le Minh Hung, Governor of the SBV, promised the SBV’s further financial, capital, technical, and legal support to rehabilitate distressed banks. A number of market conditions could be priming the pump for banking M&A. A shift in the regulatory landscape such as in moderating approaches to supervision and policy changes to ease regulatory burdens are sparking interest in banking buyouts.
For example, in accordance with Circular No.38/2014/TT-NHNN to reduce the number of banks to 15 or 17, M&A seems to be the best approach to broaden the presence of foreign credit institutes as well as rescue banks in financial trouble. Of course, these investors are likely to buy majority stakes in existing banks to enjoy the existing market share and customer network rather than starting from scratch. This means that competition amidst financial institutions would be less stiff as their number falls, thus enhancing success rates.
In particular, with preferential treatment from the SBV, the transformation journey will guarantee the operations of credit institutions, save costs, and protect the rights and interests of customers and shareholders.
Hung also noted that steps have been taken to bring domestic standards closer to international best practices, including qualified human resources, advanced technology, liquidity management, and fair competitiveness.