Bank Takeovers Designed to Consolidate Vietnam’s Troubled Banking Sector

Vietnamese Money

The State Bank of Vietnam (SBV) has been busy of late involving itself in a number of moves designed to strengthen the overall banking sector in the country.

The most recent of these was the takeover of the Global Petro Bank (GP Bank), a move prompted by that commercial lenders’ alleged failure to address its inefficient operational issues.

GP Bank in Thailand

The central bank issued a statement saying ‘All acquisition of the shareholder’s shares are complimentary; to make sure that the State Bank of Vietnam is fully active in restructuring GP Bank and helping purify the banking system.’ [1]

SBV noted it had selected Vietnam’s second-largest bank, by assets, Vietinbank, to become part of the management of GP Bank. SBV held around a 65 percent stake in Vietinbank and still holds at least 60 percent, so many of the principals involved in both organisations would likely feel comfortable with each other and trust in Vietinbank’s ability to manage the affairs of GP Bank. SBV also stated it would guarantee the interests of depositors are secured.

The central bank said it had detected weaknesses and potential risks in GP Bank’s performance three years ago. In its press statement SBV noted that GP Bank ‘made constant losses, reported a negative equity figure and showed inefficient governance.’

As SBV also stated, it had provided opportunities to GP Bank since 2012 to seek partners and restructure its operations.

GP Bank entered into negotiations with Singapore-based United Overseas Bank (UOB) but despite this the management of the Vietnamese bank failed to submit a feasible restructuring plan and its business worsened.

According to an audit of GP Bank’s financial situation, the real value of its capital is well below the legal capital minimum of three trillion dong.

As the central bank noted, it permitted GP Bank to conduct three extraordinary meetings to discuss ways to increase capital, but shareholders were unable to reach an agreement on a plan.

GP Bank is now the third local bank to be fully acquired by the SBV at no cost. The other two acquisitions have been of the Vietnam Construction Bank (currently CB Bank) and Ocean Bank.

Ocean Bank new Chairwomen

In May this year the SBV effectively took over the operations of Ocean Bank and turned it from a joint stock commercial lender into a state-owned one-member limited liability bank. Additionally, the SBV appointed Vietinbank officials to manage Ocean Bank. [2]

After the takeover, Ocean Bank’s charter capital was assessed as being four trillion dong. SBV said existing shareholders would be terminated while Vietinbank would be permitted to contribute capital and participate in the governance of Ocean Bank.

Ocean Bank, which was part of a larger conglomerate called Ocean Group had been granted permission to increase its charter capital from four to five trillion dong in 2013, but had not done so.

Ocean Bank’s troubles were exposed when the state investigation agency found several financial frauds in which, the former chairman Ha VanTham, was allegedly involved. Investigators discovered Ocean Bank’s real capital was lower than its registered capital. [3]

The SBV takeover of Ocean Bank followed on the precedent of the state bank’s takeover of the Vietnam Construction Bank (VNCB), which was acquired in February this year. That acquisition of all shares in the loss making and troubled bank was at no

cost. SBV said it would redevelop the VNCB’s business operations to perform at a safer and more effective level.

VNCB had stopped publishing annual reports in 2012, which is always a bad sign. At the time, the bank went by the ironic name of Trust Bank, but in 2013 the Thien Thanh Group which controlled the entity renamed it the Vietnam Construction Bank. Thien Thanh Group, whose chairman then became VNCB chairman, acquired 9.67 percent.

Although concerns about the bank’s operations were raised at the time, the chief objection appeared to centre around the fact that Thien Thanh Group was known as a real estate developer and did not have experience or expertise in the banking sector.

VNCB Bank Vietnam

Things came to a head in July 2014 when police arrested three senior executives of VNCB and charged them with fraud.

It was claimed the three men had counterfeited documents which enabled them to steal around 660 billion dong and they also set up 39 fake borrowing accounts with a value of around five trillion dong which they had for personal use.

Not surprisingly, after the fraud allegations became public, there were hardly any investors wiling to put money into VNCB. This prompted the SBV to start planning ways of keeping VNCB afloat, with the main thrust of the rescue package based around transforming the bank into a lender with 100 percent state capital.

The decision by the SBV to acquire the VNCB meant that its 551 shareholders, which included six organisations, including state-run entities, lost all benefits.

There were unsubstantiated rumours that the VNCB’s book equity was negative, which basically meant the shareholders had nothing left to lose anyway. The SBV made it clear on its takeover that the benefits of depositors would be retained.

The acquisition by the SBV created more ‘favourable conditions for the successful deployment of restructuring VNCB and leading the bank to a safer and more effective manner‚’ said a statement issued by the central bank at the time.

While the SBV has been busy shoring up the fractured banking sector and making sure it not only complies with existing local laws and regulations but is also made more attractive to outside investment, the first six months of this year has also borne witness to three major mergers.

The Mekong Housing Bank has merged with the Bank for Investment and Development of Vietnam (BIDV), and that has seen its charter capital increase by almost 3.4 trillion dong to 31.48 trillion dong.

Petrolimex Group Commercial Bank (also known as PG Bank), which showed a pretax profit of 168 billion dong in 2014, merged with Vietinbank. [4]

The third merger took place between Southern Bank which merged with Sacombank in March this year. Sacombanjk is the ninth-largest bank by assets in Vietnam. [5]

[1] http://www.dealstreetasia.com/stories/vietnam-central-bank-takes-over-the-third-loss-making-lender , accessed 14/7/15

[2] http://www.dealstreetasia.com/stories/vietnam-central-bank-takes-over-second-troubled-lender-ocean-bank , accessed 14/7/15

[3] ibid.

[4] http://www.wsj.com/articles/vietnam-banks-to-merge-1429022612 , accessed 14/7/15

[5] http://www.reuters.com/article/2014/03/25/vietnam-sacombank-mergers-idUSL4N0MM26O20140325 ,accessed 14/7/15