VietA Bank, for example, plans to promote retail sales and focus on individual customers and small- and medium-sized enterprises (SMEs).

Although VietA Bank’s non-performing loan ratio in late September 2016 reduced to 1.17 per cent from 2.25 per cent in early 2016, its provisions for risky loans rose by 82 per cent to VND71 billion (US$3.12 million), strongly affecting the profit result. Following the first three quarters of 2016, VietA Bank posted pre-tax profit of only VND101 billion.

Another case is Kienlongbank, which was transformed from a rural bank to an urban bank. The bank aims to become a retail bank targeting SMEs operating in agriculture and rural areas. However, Kienlongbank is also facing difficulties like other small banks in the banking system.

The bank failed to complete its 2016 profit plan, with pre-tax profit of only VND19.8 billion recorded in the first nine months of 2016, a decline of 90 per cent compared with the same period of 2015. Kienlongbank’s bad debts increased from 1.12 per cent in the beginning of 2016 to 1.46 per cent by late September 2016.

Financial expert Tran Du Lich said the more important task for small banks, at present, is to find solutions to successfully carry out restructuring and improve financial capacity, thereby avoiding being merged or acquired.

In an attempt to avoid M&As, small banks also plan to raise capital and have conducted self-restructuring in recent years through internal resources, however, many have repeatedly been unsuccessful.

Saigonbank, for example, has not fulfilled its plan to increase charter capital to VND4 trillion following its refusal to merge with Vietcombank.

VietA Bank also managed to raise its capital to just VND3.5 trillion in early 2016 and no further progress has been recorded since then.

Following the failure of the merger deal (according to rumours) with Export Import Commercial Joint Stock Bank (Eximbank), NamA Bank has also been unable to increase capital as expected. The current charter capital of the bank is just more than VND3 trillion.

The central bank recently also allowed VietBank to increase charter capital from VND3 trillion to VND3.249 trillion. With this level of charter capital, VietBank remains at the top of banks with the lowest charter capital in the market, along with other banks whose legal capital has reached only VND3 trillion, such as Kienlongbank, VietCapital Bank, NCB and Saigonbank.

However, according to experts, if small banks want to survive without conducting M&As, they must raise their financial capacity.

Meanwhile, foreign investors are not interested in weak domestic banks if the controlling regulations are not relaxed. As long as the ownership limit of foreign investors is still less than 51 per cent, foreign shareholders cannot take control of the bank.

According to economist Le Xuan Nghia, since weak and small banks are finding it difficult to increase financial capacity to accelerate the settlement of bad debts and restructuring, it is in their interests to find potential partners to conduct M&As. 

VNS