Banking Sector in Viet Nam

1. Overview

Vietnam’s banking sector has shown significant improvement which results from stable inflation and interested rate, favorable environment for foreign direct investment and a shift from deficit to surplus of the country’s current account. This sector plays a crucial role in Vietnam’s economic development in recent years.

2.Banking system

There are two tiers in banking sector in Vietnam. The first one is State Bank of Vietnam (SBV) which is responsible for monetary policy and supervision/regulation of the banking system in Vietnam. The second one consists of commercial banks, financial companies, credit co-operatives, people’s credit funds, and insurance companies. The main activity driving banking system is commercial bank which includes 5 state-owned commercial banks, 33 joint stock commercial banks, 5 joint venture commercial banks and 5 wholly-owned foreign owned bank.

State owned commercial banks (SOCB) account for more than 40% of market share. The largest bank in terms of total assets, network and still 100% state owned share is Agribank. And four other SOCB areVietcom bank, Viettin Bank, BIDV and MHB.

Joint stock commercial banks (JSCB) have small capital/deposit base and more diversified shareholding structured compared to state owned commercial banks. There are currently 33 JSCB, which the leading ones are SaiGon Joint Stock Commercial Bank (SCB), Military Joint Stock Commercial Bank (MBB), Vietnam Export Import Commercial Joint Stock Bank (EIB), Asia Commercial Bank (ACB) and SaiGonThuong Tin Commercial Joint Stock Bank (STB)

Also SBV had granted 5 licences to permit HSBC, Standard Charter Bank, ANZ Bank, Shinhan Bank and Hong Leong Bank to establish as wholly-owned foreign banks

3.Potential opportunities for foreign investment

There are solid evidences to prove that Vietnam’s banking sector has such a huge potential for foreign investment

• Government effort of reforming banking system

SBV suggested that merge and acquisition of loss making and incompetent bank would be necessary to improve efficiency within the industry. For example, in 2015, SBV forced merge of loss making Vietnam Construction Bank to Vietcom bank with purchasing share price for 0 VND. By forcing merge and acquisition of incompetent banks, SBV has increased exploitation of economies of scale and the reduced burden on regulators

• Trade agreements facilitate foreign ownership and investment

Have taken part in variety of trade agreement such as Trans Pacific Strategic Economic Partnership (TTP),  Association of Southeast Asian Nations (ASEAN) and Free Trade Agreement with different countries, Vietnam has made restructuring move to standardize banking system which will be compatible and accessible to other countries. Vietnam is required to have bilateral arrangement which eliminate the challenges of foreign establishment of banking services.

The government also encourages foreign investors to hold shares for five year period and partnering with the local bank to enhance management, capacity or new development. With the 30% limit of oversea ownership to domestic banks, the strategic foreign investors are allowed to acquire up to 15% of share in a bank, and up to 20% with Prime Ministerial approval. HSBC has also invested in a leading local bank, possessing a 20% stake in the Vietnam Technological and Commercial Joint Stock Bank—Techcombank. It is also the sole foreign strategic partner of the BaoViet Finance-Insurance Group, Vietnam’s largest insurance company. In a vote of confidence in the insurer, HSBC increased its stake to 18% in October 2009.

• Vietnam- a destination of foreign investment in South East Asian market

There is a huge untapped market in Vietnam. According to SBV, only 20% of more than 90 million citizens in Vietnam hold bank accounts and 3% of the population have credit cards. With 87% of the population under the age of 54, there is a great opportunity for retail banking activity development in Vietnam.

Also it is agreed that SME and rural areas have had challenges to access bank investment and loan. The data of Asian Development Bank shows that “lack the capacity to assess the risk of investment into SMEs and find bankable projects” and lack of knowledge about loan and lending systems for rural citizens are the main reasons leading to currentunder-banked circumstances.

The stable economic with GDP growth of around 6% to 7%; low wage costs; a large population with a high savings rate and lack of innovative approach to the market are advantages for foreign investors to accelerate financial and industrial development in Vietnam market.

Please click here to learn more about ANT Consulting or contact our lawyers and consultants in Vietnam for advice via email ant@antconsult.vn or call our office at +84 28 730 86 529

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Banking Sector in Vietnam

Banking regulatory in Vietnam

1. Overview

Vietnam’s banking sector has shown significant improvement which results from stable inflation and interested rate, favorable environment for foreign direct investment and a shift from deficit to surplus of the country’s current account. This sector plays a crucial role in Vietnam’s economic development in recent years.

2.Banking system

There are two tiers in banking sector in Vietnam. The first one is State Bank of Vietnam (SBV) which is responsible for monetary policy and supervision/regulation of the banking system in Vietnam. The second one consists of commercial banks, financial companies, credit co-operatives, people’s credit funds, and insurance companies. The main activity driving banking system is commercial bank which includes 5 state-owned commercial banks, 33 joint stock commercial banks, 5 joint venture commercial banks and 5 wholly-owned foreign owned bank.

State owned commercial banks (SOCB) account for more than 40% of market share. The largest bank in terms of total assets, network and still 100% state owned share is Agribank. And four other SOCB areVietcom bank, Viettin Bank, BIDV and MHB.

Joint stock commercial banks (JSCB) have small capital/deposit base and more diversified shareholding structured compared to state owned commercial banks. There are currently 33 JSCB, which the leading ones are SaiGon Joint Stock Commercial Bank (SCB), Military Joint Stock Commercial Bank (MBB), Vietnam Export Import Commercial Joint Stock Bank (EIB), Asia Commercial Bank (ACB) and SaiGonThuong Tin Commercial Joint Stock Bank (STB)

Also SBV had granted 5 licences to permit HSBC, Standard Charter Bank, ANZ Bank, Shinhan Bank and Hong Leong Bank to establish as wholly-owned foreign banks

3.Potential opportunities for foreign investment

There are solid evidences to prove that Vietnam’s banking sector has such a huge potential for foreign investment

Government effort of reforming banking system

SBV suggested that merge and acquisition of loss making and incompetent bank would be necessary to improve efficiency within the industry. For example, in 2015, SBV forced merge of loss making Vietnam Construction Bank to Vietcom bank with purchasing share price for 0 VND. By forcing merge and acquisition of incompetent banks, SBV has increased exploitation of economies of scale and the reduced burden on regulators

Trade agreements facilitate foreign ownership and investment

Have taken part in variety of trade agreement such as Trans Pacific Strategic Economic Partnership (TTP), Association of Southeast Asian Nations (ASEAN) and Free Trade Agreement with different countries, Vietnam has made restructuring move to standardize banking system which will be compatible and accessible to other countries. Vietnam is required to have bilateral arrangement which eliminate the challenges of foreign establishment of banking services.

The government also encourages foreign investors to hold shares for five year period and partnering with the local bank to enhance management, capacity or new development. With the 30% limit of oversea ownership to domestic banks, the strategic foreign investors are allowed to acquire up to 15% of share in a bank, and up to 20% with Prime Ministerial approval. HSBC has also invested in a leading local bank, possessing a 20% stake in the Vietnam Technological and Commercial Joint Stock Bank—Techcombank. It is also the sole foreign strategic partner of the BaoViet Finance-Insurance Group, Vietnam’s largest insurance company. In a vote of confidence in the insurer, HSBC increased its stake to 18% in October 2009.

Vietnam- a destination of foreign investment in South East Asian market

There is a huge untapped market in Vietnam. According to SBV, only 20% of more than 90 million citizens in Vietnam hold bank accounts and 3% of the population have credit cards. With 87% of the population under the age of 54, there is a great opportunity for retail banking activity development in Vietnam.

Also it is agreed that SME and rural areas have had challenges to access bank investment and loan. The data of Asian Development Bank shows that “lack the capacity to assess the risk of investment into SMEs and find bankable projects” and lack of knowledge about loan and lending systems for rural citizens are the main reasons leading to currentunder-banked circumstances.

The stable economic with GDP growth of around 6% to 7%; low wage costs; a large population with a high savings rate and lack of innovative approach to the market are advantages for foreign investors to accelerate financial and industrial development in Vietnam market.

ANT Consulting assists clients with Market Entry, Legal Advice, Tax Advice and Outsourcing Services in Vietnam.

We are located in Hanoi, Da Nang and Ho Chi Minh City.

Talk to our consultants at +84 28 3520 2779 or email us ant@antconsult.vn

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Vietnam: Banking M&A Booming in 2015

Banking market entry into Vietnam

The market for M&A transaction in Vietnam is expected to boom in 2015 with many M&A activities in banking industry.

According to experts, there will be new capital flowing into the M&A market of Vietnam with a total forecasting value up to 20 billion USD over the period from 2014 – 2018.

Particularly in 2014, according to an incomplete statistics of the M&A Forum team (MAF), the value of M&A in Vietnam reached 4.2 billion USD.

According to Prof. Dr. Christopher Kummer, Chairman of the Institute for Mergers, Acquisitions and Alliances (IMAA), Vietnam has made progress in the ranking of the global M&A activity when rising to the 20th position.

The main trend of the Vietnam M&A market during 2015 – 2016 and the following years has focused on a number of key industries such as retail, consumer goods, real estate, finance and banking.

Currently, investors from Japan, South Korea and Thailand are the main customers who acquire projects, enterprises of Vietnam.

M&A Trend in Vietnam

The foreign investors have been taking a number of corporate intelligence research, background check and M&A due diligence in Vietnam before taking a closer look into the targets for M&A. The investors from Thailand, Singapore focus mainly on the field of consumer goods and retail; investors from Japan, South Korea eye real estate and industrial real estate projects.

In fact, there have been cooperations between Vietnam companies with foreign investors as Hoang Quan Real Estate has received capital from GEM investment fund (US); Sao Mai An Giang group is also negotiating for capital grants from a major investment fund from US; Nam Long, Thanh Dong, An Gia, Khang Dien… cooperate with Japan; Sacomreal and Thanh Thanh Cong Group cooperate with Gamuda Land from Malaysia.

Vietnam Policy Open-up Creating Positive Impact

The changing in the policies recently had a tremendous impact on the investment and business activities of enterprises, particularly place strong impact on the M&A activity in the future.

For example, many important laws aimed at innovating and improving the economic institutions such as the Public Investment Law, the Investment Law (revised), Business Law (revised), the Law on management and use of state capital in production – business, Housing Law (revised), Law on Real Estate Business (revised), which allows to ease room for foreign investors in many sectors are contributing to improve the legal environment for business investment activities in general and M&A market in particular.

Vietnam Bank Restructuring

Besides, the process of restructuring the commercial banking system and divest non-core investments of the state-owned enterprises under the policy of the Government is also contributing to make the M&A market more diverse.

2015 is the year to thoroughly handle weak banks, gather small banks to form large-scale banks, meet the international standards.

It is clear that the M&A activities are just starting to heat up since 2007, when Vietnam joined the World Trade Organization (WTO). The value of M&A increased gradually until 2012, a record year with more than 4.1 billion USD of total value.

Entering 2014, with stronger action by the Government on the process of equitization of state-owned enterprises, reform some laws related to business and investment, improve administrative procedures and keep a stable macroeconomic environment, along with better growth rate have encourage domestic and foreign enterprises to acquire.

The year of 2014 was a year marking the revival of M&A transactions in Vietnam, after this operation dropped more than 50% in value in 2013. According to statistics, Vietnam has witnessed 313 M&A transactions in 2014, increase slightly compared with the previous year. This figure includes transaction between Vietnam companies with each other, foreign enterprises purchase domestic enterprises and Vietnam enterprises go to buy assets abroad.

According to the State Bank of Vietnam (SBV), in 2015, there will be approximately 6 M&A transactions. Hence, not only large banks but small banks are actively looking for M&A partners in order to survive.

The first M&A transaction will be the merger of Southern in Sacombank, then asking many other weak banks to merge with large banks. With the goal that in 2015 the banking industry will have the 2nd restructuring, consolidating of banks to form the large-scale bank with international standards.

Currently, the SBV has approved the merger of Sacombank and Southern Bank, Maritime Bank and Mekong Bank. Although the conversion rate between Southern Bank shares into shares of Sacombank or Mekong Bank to Maritime Bank is still unknown, but two banks have a large difference in size and profitability especially in recent years.

Other M&A transaction in banking industry: Vietcombank will merge with Saigonbank. Vietcombank is currently the largest shareholder of Saigonbank with stake holding of over 8.2%.

In addition, BIDV will also merge with MHB. VietinBank merges with a small bank, which had been identified as PGBank.

In recent days, information about Nam A Bank will merge with another bank with a larger scale is interested by the market. The policy and direction of SBV to accelerate the restructuring in banking industry is crucial, therefore in the future, M&A transactions in the financial – banking sector will be very busy.

ANT Consulting assists clients with Market Entry, Legal Advice, Tax Advice and Outsourcing Services in Vietnam.

We are located in Hanoi, Da Nang and Ho Chi Minh City.

Talk to our consultants at +84 28 3520 2779 or email us ant@antconsult.vn

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