Merger and acquisition (M&A) continue to be a driver for transformation in the financial--banking services (FS) sector, specifically strategic share offerings and financial companies to foreign investors, which is moving slowly. However, blockbuster deals will take place in the coming time simultaneously with restructuring of weak banks.
In the list of Top 10/50 typical M&A deals in the period 2021-2022 just announced by the M&A Forum 2022, there are two deals in the financial sector. One of them is that Singapore’s UOB Bank acquired the entire retail banking segment of Citigroup in Vietnam.
The value of the deal was not disclosed, but the event is part of a US$3.7 billion deal in which Citigroup sold all of its retail business in four Southeast Asian countries to UOB.
Another deal is that Japan’s Sumitomo Mitsui Financial Group bought 49 percent of FE Credit shares with a transaction value of $1.4 billion.
In addition, other M&A deals in the financial sector will continue in the near future because many financial companies in Vietnam are rated as "goose that lays golden eggs", contributing great profits to parent banks.
Specifically, the most anticipated M&A deal is Vietnam Prosperity Joint Stock Commercial Bank (VPBank) selling 15 percent of its capital to a foreign strategic partner, which is in a very active negotiation process. If nothing changes, MSB will also transfer a part or 100 percent of the capital of the Community Finance Company Limited (FCCOM) to foreign partners. Many foreign financial institutions have been eyeing the Hanoi-based HAFIC financial company despite the volatile economic situation at home and abroad.
Experts in the M&A field said that the global economy is experiencing unpredictable developments that make investors hesitate to pour new investment capital, especially investment capital from developed countries into emerging markets. However, Vietnam's financial-banking market is still considered attractive by experts due to high credit demand, a rapidly growing middle class and the retail segment still has a lot of room for development.
Mr. Nguyen Cong Ai, Deputy General Director of KPMG Vietnam Auditing Company, said that Vietnam is still being evaluated as a bright spot in the global economy with GDP growth forecasted at 7.5 percent- 8 percent in 2022, and in 2023 could reach 6.5 percent. This is a relatively optimistic forecast and creates opportunities for the domestic M&A market in the coming time. In particular, the banking industry is expected to see blockbuster deals if the plan to extend credit limits for foreign investors is activated.
According to Mr. Nguyen Cong Ai, the basis for this expectation is VPBank's moves to sell 15 percent shares to foreign partners with a value of more than VND 79,000 billion meanwhile Vietcombank, one of Vietnam’s 'Big Four' state-run commercial banks privately offers 6.5 percent of its capital, earning nearly VND 30,000 billion if successful. Besides, many banks such as VietCapital Bank, NamABank, and Techcombank are also in the process of looking for foreign strategic investors...
According to the Government's "Project on restructuring the system of credit institutions associated with bad debt settlement in the 2021-2025 period", in addition to the plan to develop and organize the implementation of appropriate solutions in the direction of increasing charter capital and raise the capital adequacy ratio to enhance financial capacity and safety of banking operations, the Government is encouraging the purchase, sale, consolidation and merger of credit institutions on a voluntary basis to increase the scale, scope of activities and competitiveness.
In early 2022, the State Bank (SBV) issued Circular 02/2022, which mentioned plans of restructuring and transferring ‘zero dong banks’ which were taken over by the State Bank.
The Government and the State Bank have given the green light to M&A deals contributing to promoting many foreign investors' interest in M&A deals in the banking and financial sector in Vietnam. In addition, many potential commercial banks in Vietnam are also very interested in participating in the transfer of weak banks to carry out restructuring in the coming period according to the policy of the State. Although no deal has been officially announced so far, many moves from the SBV to commercial banks have revealed deals in the coming time.
Specifically, MB and MB Ageas Life Insurance Company in 2022 signed cooperation agreements with Ocean Bank, from which the market has information that MB will cooperate closely with Ocean Bank. Similarly, Vietcombank also took the opinions of its shareholders about the forced transfer of a weak bank because this bank has been assigned by the State Bank to Vietcombank since 2015.
Shareholders of HDBank have approved the plan to receive a forced transfer from a weak bank. The VPBank’s General Meeting of Shareholders also approved the restructuring of credit institutions and it is likely to participate in restructuring a weak bank.
Notably, the form of M&A in banking deals with forced bank transfers is different from the previous period. Accordingly, weak banks are received by big banks under the model of parent-subsidiary companies. With the participation of potential banks, weak banks will develop more. And banks participating in the restructuring also benefit such as the extension of credit limits and expansion of their networks.
Weak banks that are restructuring will be the target of mergers and acquisitions (M&A) deals in the near future as the Government is strongly promoting the restructuring of the country’s finance and banking industry. Although M&A deals in the financial service sector are only in the early stages and successful cooperation also takes years to complete the transition. However, with the participation of large banks in M&A deals, the restructuring of weak banks will be accelerated in order to successfully implement the "Project on restructuring the system of credit institutions associated with dealing with bad debt in the period of 2021-2025”.
According to Mr. Yoshizawa Toshiki from Japan’s Aozora Bank, M&A activities in the financial and banking sectors in Vietnam will be more exciting in the coming time because the Vietnamese Government is having policies to equitize state-owned banking enterprises and restructure weak, undercapitalized substandard bank. This is an opportunity for foreign organizations to pour their investment in. Currently, many Japanese medium and medium-sized banks are learning about the financial market and M&A in Vietnam.