Settlement of bad debts to chalk out bustling M&A in the banking sector

Boisterous but unsuccessful

After unsuccessful negotiation on the acquisition of GPBank to Singapore-based United Overseas Bank (UOB), GPBank is preparing the acquisition trade deal with another investor.

The trade deal on UOB’s acquisition of GPBank failed because UOB offered low acquisition price. In addition, UOB asked to acquire the entire GPbank, including the collateral assets of bad debts, which Vietnamese Government cannot guarantee.

Similarly, in recent years, many foreign investors have expressed their interests in the acquisition of Ocean Bank. However, no trade deal has been successfully done, mainly due to the concerns about bad debt settlement after M&A.

Bui Huy Tho, deputy director of the Department of Credit Institutions and Banking Activities Licensing Management under the Supervision and Inspection Agency of the State Bank of Viet Nam (SBV), admitted that it is not easy for foreign investors to acquire a weak bank because the bank’s assets and debts are diverse.

Luckily, on June 21, 2017, the National Assembly issued Resolution No. 42/2017/QH14, which facilitates the handling of collateral assets of bad debts.

In fact, the acquisition trade deal of Ocean Bank to foreign investors has seen some positive signals (entered in phase II of the negotiation process). With the current legal basis of bad debt settlement, the trade deal will be likely successfully conducted soon.

Foreign investors still eye local banks

According to National Financial Supervisory Commission, besides the three zero VND banks including Construction Bank, Ocean Bank and GPBank, there are numerous weak banks which need to be restructured. 

When Resolution No. 42/2017/QH14 comes into full force and effect on July 15, 2017, it has offered opportunities for speeding up the process of restructuring these banks with the participation of domestic and foreign investors.

According to Dr. Le Xuan Nghia, the economic expert, "Foreign investors, especially investors from ASEAN and East Asia, are still very keen on the Vietnamese market."

In fact, Vietnamese banks are still attractive to foreign investors. Recently, many foreign banks have "landed" in Vietnam. In mid-July, 2017, UOB was granted by SBV license on the establishment of 100 per cent foreign-owned bank in Viet Nam, increasing the total number of foreign banks in Vietnam to nine. Currently, at least two banks in the region are planning to establish foreign banks in Vietnam.

The high growth of Vietnamese retail banking sector makes it the most attractive retail market in the region. Therefore, M&A is the shortcut to gain the market share in this sector.