M&A in the Finance – Banking Sector in Vietnam 2021 – 2025

With the goal of restructuring the credit institution system associated with bad debt handling, M&A activities in the finance and banking sector in Vietnam between domestic financial institutions will be quite active in the period 2021-2025. However, cross-border M&A activities in this sector remain limited and infrequent.

1. Government policies impact M&A activities in Vietnam

Current Situation:

In the context of Vietnam in particular and the world in general suffering many negative impacts from the COVID-19 pandemic, the bad debt ratio at Vietnamese credit institutions remains high and show no signs of decline. Meanwhile, the capital credit institutions’ capital adequacy ratios have not met expectations.

Government Policy:

In addition, some credit institutions, particularly domestic banks, operate inefficiently, affecting the economy and general psychology of people and businesses. Facing that situation, the Government issued Decision No. 689/QD-TTg dated 8 June 2022 approving the Project “restructuring the system of credit institutions associated with bad debt handling in the period 2021 – 2025”. Accordingly, the Government and the State Bank encourage the purchase, sale, consolidation, and merger of credit institutions on a voluntary basis to increase their scale, scope of operations, and competitiveness and focus on restructuring weak domestic banks under the State Bank’s approval and supervision.

Furthermore, the Government continues to create favorable conditions for foreign credit institutions to operate business and compete equally with domestic credit institutions, encourages foreign credit institutions to assist in supporting and handling difficulties and weaknesses of domestic credit institutions. The government and the state bank both encourage joint ventures.

These policies encourage more active M&A activities among domestic credit institutions. However, cross-border M&A activities in this sector remains limited with a small number of deals. This is explained by the unique nature of credit activities and the significance of money in its impact on social life in general, as well as the domestic economy .

2. Focus on merging domestic credit institutions with the goal of managing bad debts and improving the capacity of credit institutions

Credit institutions conduct very specific activities that have  direct impact on the economy and social life. Besides, it is necessary to understand that financial instruments are one of the State’s management tools. Accordingly, weak credit institutions may be required to make mandatory transfers upon request from the State Bank. These transfer activities often take place with domestic banks.

However, the State Bank allows credit institutions receiving transfers to submit plans to receive transfers from banks that are operating inefficiently, such as in the case of Vietcombank, which has the plan to receive CBBank as a compulsory transfer, or MBBank which receives Oceanbank as a compulsory transfer. With these M&A transactions, one side is the bank receiving the transfer and the other side is the bank subject to mandatory transfer under the supervision of the State Bank.

3. Pave the way for cross-border M&A in the finance and banking sector

Cross-border M&A: Catalyst for Banking and Finance’s Future Growth:

The participation of foreign credit institutions will serve as a catalyst for the development of domestic credit institutions, especially in terms credit scale, increase in capital adequacy ratio, and promote the application of technology by credit institutions.

Growth potential of the Consumer Finance market:

Vietnam is an appealing destination for investors due to its potential as a developing country with many export advantages, a sizeable working-age population, and rising consumer finance needs. Vietnam’s consumer loan market is thought to be rich in opportunities.

Consumer loan market in Vietnam:

In addition to well-known financial companies specializing in consumer lending in the market such as FE Credit, private banks such as VBBank and state-owned banks such as Vietcombank also enter consumer loan market. Furthermore, the participation of 100% foreign-owned financial companies such as Mirae Asset, HD Saigon, and Lotte Finance also heats up Vietnam’s consumer loan market.

However, not only consumer loans, but many other credit activities also attract the attention of foreign investors such as granting credit with secured assets. However, the number of M&A transactions with foreign elements is relatively low. Most notable recent transaction is the sale of a portion of VPBank’s charter capital to Sumitomo Mitsui Banking Corporation (SMBC) of  Japan via a private share issuance. Previously, SMBC had received 49% of charter capital from FE Credit. Thus, currently, VPBank with the participation of SMBC is still in a period of many post-M&A changes and is expected to make new progress.

Furthermore, the Big 4 banks also intend to raise more foreign capital through private share issuance. This shows that expanding and receiving more capital contributions from foreign countries is an inevitable and mandatory trend to promote the growth of credit institutions in Vietnam.

4. Conclusion

Thus, with the policy of developing an increasingly strong system of credit institutions, in the coming time, cross-border M&A activities in the finance and banking sector may become vibrant again after a period of relative calm from the second half of 2023 to early 2024. Given the unique nature of this field, caution and quiet periods are understandable for carefully preparing future M&A plans.

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