VietNamNet Bridge – Moody's in a recent report said that enhancing merger of banks is a positive move to help eliminate small banks, including weak ones.

The majority of banks that need merger are small ones that lack capital. Reducing the number of banks will also help minimize spreading the risk to the banking system.

In addition, streamlining the number of banks will also help agencies to more easily manage the implementation of regulations and monitoring systems. According to Moody's, a number of problems in Vietnam's banking system over time is derived from the lack of strict management.

In addition, although the interbank capital, which is considered part of the total bank capital, fell from 22% at the end of 2011 to 10% -15% by the end of 2014, it remains high in some banks and continues to be a negative factor affecting market confidence.

According to Moody's, the deceleration of credit growth in recent years was thanks to the efforts to reduce debt from banks and weak domestic demand.

Therefore, strengthening bank mergers may partly help the remaining banks expand market share, and encourage them to step up lending.

In the coming time, the market is expected to witness a number of M&A affairs in the banking sector, such as the merger of VietinBank and PG Bank, Sacombank and Southern Bank.

Also, Moody's said the new rules in Circular 36, which took effect from February 2015, restricting cross-ownership between banks (a credit institution is not allowed to buy and own more than 5% of shares of other credit institutions) will accelerate the process of merger in the industry.

Accordingly, Circular 36 will screen the banks that are inconsistent with the provisions, thereby forcing them to divest, or to engage in the sale or merger process.

The purchase, sale, and merger in the banking sector is expected to create banks of larger scale, to help increase operational efficiency, but according to Moody's, the reverse of this process can also bring certain risks.

Mai Nguyen