This applies to the domestic market. For cross-border deals, there is still much to prepare if Vietnam wants to continue attracting investment waves, including resolving complex legal barriers.

Cong Thanh Bui, managing partner and director PLF Law Firm

Finance and banking sectors have remained key destinations for merger and acquisition (M&A) even before 2024. Recalling the previous five years, Vietnam witnessed two fascinating mega deals – one from South Korea (BIDV and KEB Hana Bank) and one from Japan (VPBank and Sumitomo Mitsui Banking Corporation) under private placement. These were the largest transactions recorded in Vietnamese banking history, aimed at strengthening owner equity and attracting more foreign direct investment (FDI) to diversify financial products.

In 2024, we continue to see more highlighted deals in Vietnam’s finance and banking sector with similar purposes of acquisition. Home Credit Group signed an agreement to sell Home Credit Vietnam to Siam Commercial Bank from Thailand for approximately $865 million. The transaction is expected to be completed in the first half of 2025.

Meanwhile, Krungsri, a member of Japan’s MUFG Group, purchased the remaining half of SHB’s charter capital after the last transaction in 2023, allowing SHB to enjoy a significant capital surplus and more financial flexibility.

Although these cross-border activities undoubtedly marked a positive M&A season in the finance and banking sector in 2024, they remain quite modest in terms of competition and quantity compared to real estate, fast-moving consumer goods, or manufacturing. Most transactions this year are small- to mid-scale mergers of domestic credit institutions, executed under the State Bank of Vietnam’s (SBV) request to improve overall capacity.

The government is determined to close the gap between the Vietnamese finance and banking system and those in developed countries by creating ownership advantages for corporations. Specifically, the SBV is allowed to pursue a strategy to strengthen operations. This involves forcing strong domestic banks to take over weak banks in domestic M&A transactions. In exchange, they will be allowed to raise foreign ownership capital from 30 to 49 per cent.

Two cases have been recorded: Vietcombank taking over CBBank, and MBBank acquiring OceanBank. GPBank and DongABank are the next entities to be transferred, although information about the receiving banks remains unconfirmed.

These mergers, despite bringing immediate market and power expansion to efficiently operating banks, are a double-edged sword. Since they must acquire both tangible and intangible assets of the transferring banks, strategic approaches are essential to handle passing loans and debts; otherwise, these could negatively affect return on investment.

The government proposes reducing its ownership to encourage FDI, aiming to develop the banking system between now and 2030. The government plans to reduce its ownership to at least 51 per cent, expected to apply from next year.

This change opens the path for cross-border M&A in Vietnam’s finance and banking, as foreign investors gain easier access to FDI in Vietnam. However, the success of this will depend on regulations and deal execution, requiring strong reforms to ease and accelerate procedures.

Next year could be a busy one for domestic financial institutions completing their assigned mergers and acquisitions. However, for cross-border deals, it may still be too early to celebrate. Signals and initial agreements provide hope, but successful deal execution still faces numerous obstacles and challenges. Many of these, to be frank, dissuade foreign investors.

Complex legal barriers are one of the most unfortunate reasons for hesitation among foreign investors doing business in Vietnam. They face complex procedures, from M&A approval and due diligence to deal execution and post-transaction processes. These hurdles can lead to delays, uncertainty, and, in worse cases, disputes.

Difficulty in appraisal and inconsistent financial reporting among credit institutions creates challenges for investors, especially in M&As within this sector. Aside from differences in reporting standards, a lack of transparency in financial reports adds hidden risks.

There is a mismatch in M&A targets of buyers and sellers. Foreign investors and Vietnamese credit institutions sometimes have different expectations when pursuing cross-border activities. For example, one party may prioritise immediate monetary benefits, while the other focuses on long-term development, leading to stalemates. Many deals in Vietnam, despite showing great potential initially, ultimately fail due to escalating conflicts in both parties’ objectives.

Cultural differences are another hidden risk often overlooked in M&A transactions in finance and banking. With hundreds to thousands of personnel across various departments, integration poses significant post-acquisition challenges that can persist for years. Differences in corporate interests, cultures, and management styles are just some of the issues to consider.

External factors such as unfavourable global macroeconomic conditions and competition from other countries could also hinder the growth of M&A activities. Once the above obstacles are addressed, we will likely see foreign investors becoming more enthusiastic about pursuing FDI in Vietnam’s finance and banking sector.