>> Official: Vietnam urged to restructure its banking system
In Vietnam\'s developing economy, the large number of small banks could pose a great risk to the country\'s financial system.
Mergers and acquisitions key to restructuring banking system
The interest rate race
In recent years small banks, with limited capital and low liquidity, have often been the first to offer attractive interest rates.
Some banking officials have gone on the record, saying that many small, newly-established banks offer extremely high interest rates to their customers, exceeding the regulations.
When the State Bank of Vietnam (SBV) set a cap on yearly deposit interest rates at 14%, a large number of smaller banks used loopholes and bonuses to get around the regulation, causing the "interest rate race".
Some banks, offering bonuses and "gifts" pushed up their rates to as high as 22%.
The fear is that higher lending interest rates will result in higher lending interest rates.
Incompetent management
Currently, Vietnam has five state-owned banks, 39 commercial joint stock banks and five wholly foreign-owned-banks.
The total asset of the banking system in Vietnam has been estimated to be over VND3,500 trillion (USD168 billion). But their entire chartered capital is just VND250 trillion (USD12 billion).
Despite the big disparity in their assets, banks of all kinds have to comply to the same requirement for a chartered capital of VND3 trillion (USD144 million) as minimum upon the SBV’s demand.
One anonymous official from the SBV admitted that 13.6% of commercial banks reported inefficient operations, apparently due to their financial incompetence and inefficient management.
M&A emerging as a financial trend
The M&A trend in Vietnam is still incipient. But many experts have said it is time for mergers and acquisitions to be stepped up for the good of the nation\'s financial security.
The most prominent M&A deal to date is the merging of LienVietBank with Vietnam Postal Savings Service Company (VPSC) to form LienViet Post Bank (LPB), the first post bank in Vietnam.
Other large deals include Vietinbank’s sale of 10% of its stake to International Financial Corporation (IFC). ABBank’s also sold VND600 billion (USD28.8 million) worth of convertible bonds to IFC as well as Maybank.
M&A key to stability in banking sector
The merger between VPSC and LienVietBank actually caused a stir among their customers, many of whom rushed to withdraw their money, believing that the bank was going to be dissolved.
Dr. Nguyen Duc Huong, Vice Chairman of LPB’s Board of Directors said this incident should be a lesson for institutions who wish to merge in the future. He said that communications between banks and their clients should be very clear in order to avoid such situations.
According to Huong, the M&A trend will continue to increase as a result of the Sate Bank of Vietnam\'s requirement for banks to increase chartered capital to at least VND3 trillion (USD144 million). The SBV is expected to raise this requirement to between VND5-10 trillion (USD240-480 million), which would, according to him, further speed up M&A.
