Increasing Pressure on Weak Banks

During the inquiry, Governor Nguyen Van Binh cited specific banks in the must-be-restructured group in order to explain the fact that there are different numbers for banks’ bad debts. According to the Governor, SBV cannot solely base its decision on reports by credit agencies, but it has to remotely monitor and inspect on the spot to get a more accurate number for bad debts. SBV has inspected nine credit agencies which must be restructured. According to reports by these credit agencies, none of them has a bad debt ratio above 2.5 percent; all nine agencies are even reportedly profitable. However, upon direct inspection by SBV, there exist agencies with bad debt ratio above 30 percent, some even above 60 percent and not only unprofitable but losing both working and registered capital.

 

Out of nine weak commercial banks which need restructuring, three of them are Sai Gon Bank, First Bank and Vietnam Tin Nghia Bank, which are merged and continue to be restructured under the close inspection by SBV. At the moment, the Government has accepted the self-restructure plan of TienPhong Bank; Habubank’s plan to restructure and be acquired by Saigon-Hanoi Bank is already ratified. However, specific details have not been reported to SBV.

 

These expected Merger and Acquisition (M&A) deals in 2012 and the peak period of bank restructuring planned by SBV show that transactions, information seeking and negotiation activities are on the rise.

 

The Habubank deal previously caused rumours because of the leaked information. Banks have since learned this lesson and are more cautious; M&A plans are considered strictly confidential. This is also a requirement set forth by the SBV regarding information safeguarding procedure of M&A deals due to concerns that inaccurate information leaking out too soon will cause panic in the market

 

In reality, there are deals which are nearly closed, but in the last minute fall apart because the parties cannot reach a agreement.

 

Although the SBC really wants and actively provides guidance for M&A deals in order to restructure weak banks, according to an official from this organisation, M&A deals really depend on whether both parties can offer an optimal plan which is in line with the benefits of both.

 

There are four months to go until the end of the year, but questions still remain on whether the plan to restructure nine weak commercial banks will come to fruition. Market information shows that this is the intense period of the negotiation process and there will be several notable M&A deals during this period.

 

Regarding GP.Bank case, SBV will report the restructuring plan to the Prime Minister for further guidance – according to a report by SBV in mid-August.

 

GP.Bank is formerly known as Ninh Binh Rural Commercial Bank, which has been changed to Metropolitan Commercial Bank in Hanoi in 2005 with the name G-Bank. In 2006, G-Bank announced their strategic investor - Petro Vietnam. In 2007 the bank’s name is again changed to GP.Bank.

 

SBV claims that they will continue the restructure of commercial banks after initial successes.

 

Another case garnering considerable public attention is the M&A deal of Petro Vietnam Financial Company (PVFC). Prior to the deal, Mr Nguyen Thien Bao, CEO of PVFC, revealed that the company planned to restructure into a commercial bank. This transformation can only be accomplished when PVFC merges with another commercial bank.

 

If this happens, Petro Vietnam has to withdraw their invested capital from either PVFC or Oceanbank or merge the two of them into one unified bank, because they can not concurrently invest in two commercial banks according to regulations.

 

SBV once claimed that they would successfully merge five to eight banks during the first quarter of 2012. The end of the third quarter is drawing near, but there are only two banks which have completed their restructure plan, in which the Habubank-SHB is the first M&A deal. From now until the end of the year will be a busy time for SBV as well as commercial banks in the must-be-restructured group

 

Besides, some are worried that the restructuring process is coming to a halt and not as “vigorous” as the beginning, with SBV quickly implementing plans to evaluate banks’ health and publicising strong statements. If the process is halted, the pressure of losing solvency of the whole system will increase. This is the reason the SBC, while respecting and encouraging voluntary M&A deals, increases pressure on weak banks to facilitate M&A deals.