Bigger banks hoover up weaker rivals, photo Le Toan

VPBank last week publicly asserted its readiness to assume control of a commercial bank earmarked for compulsory transfer.

“We are primed and ready in terms of resources” said deputy CEO of VPBank, Pham Thi Nhung, highlighting the company’s ambitions to restructure the country’s banking system as tasked to them by the government and the State Bank of Vietnam (SBV).

“Such strategic partnerships are poised to fortify VPBank’s capital base, amplifying its capacity to support medium and long-term credits for small to medium-sized enterprises, green development projects, and infrastructural initiatives,” she added.

Nhung also disclosed that VPBank is in the advanced stages of selling a 15 per cent stake to one of Japan’s financial giants – Sumitomo Mitsui Banking Corporation (SMBC), a pivotal member of the Sumitomo Mitsui Financial Group (SMFG). ­

This marks the first instance in which the leadership of VPBank has confirmed participation in a compulsory takeover. Prior to this, during the bank’s annual session in April, its chairman, Ngo Chi Dung, had only gone as far as to hint at initial examinations into acquiring weak credit institutions.

Currently, four struggling banks, DongABank, Construction Bank, Oceanbank, and Global Petroleum Bank (GPBank), are on the radar for restructuring. Prior to VPBank declaring their intention to acquire their first commercial bank, Vietcombank and MB had already presented plans to their shareholders for potential mandatory acquisitions, with CB being explicitly associated with Vietcombank and MB being linked to OceanBank.

Last week, a government report presented to the National Assembly (NA) revealed that SBV is actively seeking investors to help restructure troubled bank SCB, with the intention of proposing this plan to the government. This decision follows SCB’s placement under special scrutiny in October 2022 after multiple branches witnessed a surge of patrons withdrawing funds en masse.

Prime Minister Pham Minh Chinh had previously emphasised the need for transparency in the restructuring of vulnerable banks, such as SCB, ensuring no assets are misappropriated. This special control is a strategic measure, aimed at closely monitoring the bank to prevent adverse impacts on the institution itself and, more broadly, the national credit organisation system.

“All these banks are obligated to employ consultants to determine their enterprise value. Independent advisory bodies then issue valuation certificates, and these findings are subsequently sent to the State Audit for regulatory auditing,” a source detailed.

Identifying and negotiating with commercially viable banks equipped for compulsory transfers – those with the necessary financial capability, governance, and experience in restructuring weak credit organisations – remains a challenge largely due to their voluntary participation.

“Banks taking on these transfers need ample time to persuade shareholders, especially ­­major ones and strategic foreign stakeholders, to unanimously agree on compulsory transfers,” commented an industry insider.

The mechanisms and financial resources for dealing with frail credit institutions, like in the case of DongABank, are still riddled with inefficiencies and elongated procedures. Problems surrounding the collaboration between various governmental bodies make the process of handling these weak banks more intricate, and a lack of precedents ensure that complexities still surface.

In order to combat this, the SBV plans to instruct banks receiving compulsory transfers to finalise their strategies for acquisition and present them directly to the government for approval and implementation.

There are also amendments underway to the Law on Credit Institutions, which will look to refine the management of vulnerable credit institutions. Draft provisions of the law aim to bolster risk management capabilities and the governance of banks, preventing exploitative and manipulative banking practices for personal gain. This legislation is slated for consideration and passage in the NA’s sixth session at the end of October.

Economic expert Le Xuan Nghia emphasised that the focal point of current bank restructuring efforts should be the resolute handling of frail banks and prioritising the resolution of bad debts. To address these effectively, Nghia believed that it is essential to establish mechanisms to attract investors, including foreign ones, and to stimulate the development of a debt trading market.

“Without the active participation of both domestic and international investors, addressing the issue of bad debts and ensuring the health of our banking system will remain a formidable challenge,” he said. “This underscores the growing sentiment about the importance of global collaboration and the need for a thriving debt market to bolster economic recovery and growth.”