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Basel II may trigger new M&A trend

VietNamNet Bridge - Commercial banks will be under pressure to meet Basel II capital standards, which could prompt them to think of M&A (merger & acquisition) as a solution for growth.

VietNamNet Bridge - Commercial banks will be under pressure to meet Basel II capital standards, which could prompt them to think of M&A (merger & acquisition) as a solution for growth.


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The Plan 1058 on restructuring credit institutions and settling bad debts in 2016-2020 approved by the government says that the State Bank of Vietnam will continue accelerating M&As of credit institutions to form institutions with larger scale and better management.

Bui Quang Tin, CEO of BizLight Business School, said that one of the most important tasks of Vietnam’s commercial banks in 2019 is to increase charter capital.

Banks have been told to have regulatory capital and capital adequacy ratio (CAR) satisfying requirements stipulated in the State Bank’s Circular 41.

With the increase in provisioning against risks, it is highly possible that many banks would have a CAR at below 8 percent, the minimum required stipulated in the circular. 

The laws stipulate that commercial banks only can merge with each other. Commercial banks can only buy assets, rights, obligations and legal benefits of finance and finance leasing companies, but they cannot buy other commercial banks.

In theory, Basel II would encourage bank M&As to form financial institutions with a larger operational scale. 

The State Bank of Vietnam (SBV) has mentioned the possibility of reducing the number of banks, saying that the banking system will need 15-17 banks with large scale and good health.

An analyst said that Basel II would require the banking system to restructure, but the State Bank doesn’t need to release commands. The small banks with weak inner strength will have to merge with others.

Tin believes that the bank M&A market will see more events in 2019 after a quiet 2018.

According to Tin, there are many limitations on M&A activities in Vietnam. The laws stipulate that commercial banks only can merge with each other. Commercial banks can only buy assets, rights, obligations and legal benefits of finance and finance leasing companies, but they cannot buy other commercial banks.

Meanwhile, in other countries, such limitations don’t exist. In Canada, for example, the laws allow businesses to buy parts or entire banks if they get permission from the head of the central bank.

Tin believes that policy makers need to refer to the laws of other countries and amend local laws to Vietnam’s conditions. 

He suggested allowing banks to merge some services but not all. Later, it may undergo further restructuring. 

The partial M&A, if approved, woud help accelerate M&A activities and increase the value of M&A deals, while giving more opportunities to banks to improve their health.


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