Vietnamese banks are considering mergers and acquisitions (M&A) as the last resort for their survival amid increasing bad debt.

Banking M&A trend is emerging in Vietnam

According to Governor of the State Bank of Vietnam Nguyen Van Giau, the rate of bad debt owned by Vietnamese banks has increased to 2.72%, from 2.17% at the end of 2010.

“In fact, nearly half of banks are insolvent. On the other hand, this could be seen as an opportunity for increased mergers and acquisitions, as well as a restructuring of the banking system in the country," said Nguyen Manh Dung, Deputy General Director of the Deposit Insurance of Vietnam (DIV).

Hung noted that the lack of a legal framework for M&A has hindered its development, even though foreign investors are allowed own stakes of up to 30% in Vietnamese banks.

On the surface

So far, nearly 20 Vietnamese banks have sold between 10% and 20% of their stakes to foreign investors.

The deadline for banks to raise their chartered capital to VND3 trillion (USD144.9 million) has been extended to the end of this year. Meanwhile many banks are making efforts to seek strategic partners before considering the possibility of M&A.

However, amid rising pressures, small and insolvent banks may find no better choice for their survival.

Australian Commonwealth (CBA) has bought a 15% stake in Vietnam International Bank (VIB), and plans to raise its ownership to 20% this year.

Le Duc Tho, Deputy General Director of Vietnam Bank for Trade and Industry (Vietinbank) said they are looking to sell a 10% stakes of the bank to the International Finance Corporation (IFC).

Barriers

According to Dung, the banking industry in Vietnam has yet to give enough precedence to M&A, but, he says, DIV is speeding up research to provide support in the area.

To Hai, Vice Chairman of Ban Viet Securities Company, however, said that making information public about the value of M&A contracts could prove to be an obstacle in the process, because the banking sector plays a vital role in the national economy.

“Foreign investors are still worried about unclear regulations. In addition there are barriers to accurate appraisal,” said Gordon Parker, Managing Director of Morgan Stanley Hongkong.