Economic uncertainty creates is a prime time for merger and acquisition
(M&A) deals in the banking industry, said an industry expert.
The world has witnessed many
recent M&A deals, which can take place within a country or across
international borders, among financial institutions and banks of various
scales, Dinh Tuan Minh of the centre for Economic Research and Policy told Tuoi
Tre newspaper.
“A common characteristic is that
this activity seems to become more robust and occur on a larger scale in
periods of increasing economic difficulties.”
For example, in the US, during
the economic crisis, there was a series of big mergers, like the $50 billion
deal between Bank of America and Merrill Lynch, in which the former acquired
the latter.
“Locally, we have recently
witnessed M&A deals related to Saigon Thuong Tin Commercial Joint Stock
Bank (Sacombank), the merger of the Hanoi Housing Commercial Joint Stock Bank
to Saigon-Hanoi Commercial Joint Stock Bank, and the merger of three banks,
Ficombank, TinNghiaBank and Saigon Commercial Bank (SCB) into a new one bearing
the name of the last one.”
As long as M&A activities are
in accordance with law and regulations, they should be encouraged, argues Minh.
“However, such actions are
harmful if the acquirers are groups of bankers allying with each other to allow
their banks to dominate the financial market later on.”
“They can then manipulate
currency trading, interest rates, and exchange rates. For example, they can ask
their banks to hoard foreign currencies on a large scale to create scarcity,
thus driving up prices.”
“Even worse, if those groups of
banker alliances are the men behind other business groups, they can prioritise
cheap and sub-prime credit for their own corporate groups.”
“When that happens, it can lead
to many different types of risk to the economy.”
The national law on credit institutions
currently regulates a limit on the percentage share of ownership to minimise
such unhealthy activities and prevent any individual or organisations from
obtaining the right to govern a bank.
It states that an individual
shareholder may not own more than 5 percent of the charter capital of a credit
institution, while institutional shareholders may not own more than 15 percent
of the charter capital of a credit institution, except in some special cases.
In addition, shareholders and
their relevant individuals may not own over 20 percent of the charter capital
of a credit institution.
“Thus, violations in banking
acquisitions occur when individuals or organisations circumvent the provisions
of the cap on share ownership percentage.”
Intricate relationships
The current state of
cross-ownership among banks is becoming very complicated.
“In some cases one person is both
the owner of a bank and a number of enterprises, and these enterprises
contribute capital to the bank.”
“Moreover, there are also group
of shareholders owning banks; and those banks belong to one or many in their
groups.”
“As a result, one or a group of
individuals and organisations can, through their “backyard” companies, both
directly and indirectly own shares/charter capital in a bank, so the
circumvention in ownership percentage is often hidden behind crisscross
ownership relationships.”
In confronting the situation,
state agencies should promote M&A in the banking sector in accordance with
the law, as well as the national scheme in restructuring the banking system.
“Cross-ownership should be ceded
to an independent intermediary or prioritised for foreign investment from
overseas financial institutions and international banks.”
In addition to solving the
problem of cross-ownership, state agencies should further improve existing
regulations related to M&A activities and banking takeovers, including
regulations limiting share ownership percentage.
Such regulations can help eliminate
the tactic of using “backyard” companies to hold bank shares in excess of the
allowed limit.
Of course, it is difficult for
laws to take all the existing practices on banking M&A into account, so
state agencies need to further strengthen market discipline through regulation
on information disclosure, enhanced monitoring of large shareholders, and
increased intensity in sanctions for violators.
Prime minister Nguyen Tan Dung
early last week praised the Ministry of Public Security for strictly following
the orders of the government in launching an investigation into illegal
activities aimed at hostile takeovers in the banking sector, causing
instability. The minister also called for punishment for the culprits “no
matter who they are” at the 18th session of the Central Steering Committee for
Anti-Corruption in Hanoi last Wednesday.
According chinhphu.vn, the
official website of the government of Vietnam, PM Dung “instructed the Ministry
of Public Security to speedily carry out investigations to clarify and punish
according to law all those, no matter who they are, that acted illegally, to
ensure openness, transparency, security and safety of the banking system in the
country”.
VietBiz24
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