An impending merger between Southern Bank and Sacombank is the latest move in Vietnam’s banking restructuring process.
Inan interview published on the Vietnam Investment Review on March 11,Tran Hoang Ngan, member of the National Assembly Economic Committee andNational Financial and Monetary Advisory Council, believes the goals ofsufficient capital supply and healthy banking sector can be achievedeven by reducing the number of banks from more than 60 at current toonly 30-40.
*The number of local banks has fallen commensurate with banking sector restructuring. Will this impact the capital supply?
Vietnamis currently home to 62 banks. Apart from state-run Vietnam DevelopmentBank, Bank for Social Policies and Cooperative Bank of Vietnam, thereare 39 commercial joint stock banks, 14 foreign banks and branches and 6joint venture banks.
It is hard to put a number on how manybanks are needed to sufficiently supply capital for the whole economy asthe scope and scale of the banks and the overall system play majorfactors in this calculation.
If banking sector shake-upscontinue, the country would only need around 30-40 strong banks withexpansive networks to serve the capital needs of businesses,organisations and individuals.
On the other hand, if there were ahundred banks smaller in scale and only concentrating on particularregions the economy may not get the supply it needs.
Vietnam’sGDP rose from 104 billion USD in 2010 to 176 billion USD in 2013 with anestimated 186 billion USD in 2014. Do you think that rather thanmergers there should be comprehensive measures to push bank growth tomeet the capital demands once the economy reaches 250-300 billion USD insize.
When Vietnam’s economy hit the 100 billion USD mark forthe first time in 2010 there were nearly 100 banks. Many of these wereunderperforming, resulting in the government looking to reduce thenumber to boost efficiency.
The banking sector restructuringprocess has created an environment where the government isn’t obligatingbanks to merge or sell but has rather created a transparent andimpartial market where they are forced to compete and pay closeattention to their shake-up plans.
M&A [mergers &acquisitions] is only one measure of many being used to restructurebanks. But based on current conditions, the government may encouragebanks such as Vietcombank, BIDV, Vietinbank, Agribank and MHB to buystakes in underperforming banks or even buy-out weak banks to pushforward restructuring and cut down on the total number of banks.
Inthe near future, once GDP is 2-3 times its current level, only 30-40banks with nationwide networks will be needed to satisfy customerdemands.
*But currently bank branches and transaction offices arenearly all located in urban centres with very few in rural areas,right?
Urban areas host a slew of banks, but with 5-7 percent GDP growth a year, they will likely have to open up even more offices.
Inthe near future, most payment services will have to go through banksand card and other non-cash payments will likely become increasinglypopular. Banks will play the role of cashiers for the economy as wholeand the individuals therein. By that time the current system of bankbranches and ATMs may not be able to keep up with rising demand.
*Someexperts say that M&A does not always produce a healthier bankingsystem but rather is a way for ‘two feeble banks to support each other’.Do you hold same view?
I don’t think so. Realistically, banks inthe post-merger period will likely be stronger in terms of capitalsources and network, the two most important factors in a bank’soperation. Stronger entities will drive competition and strengthenweaker institutions.
For example, before a merger an area mayhave two different bank branches and transaction offices that competewith each other as well as personnel at their headquarters. Aftermerging the costs will be halved and operations will be efficient on theback of lower operating costs.-VNA
Inan interview published on the Vietnam Investment Review on March 11,Tran Hoang Ngan, member of the National Assembly Economic Committee andNational Financial and Monetary Advisory Council, believes the goals ofsufficient capital supply and healthy banking sector can be achievedeven by reducing the number of banks from more than 60 at current toonly 30-40.
*The number of local banks has fallen commensurate with banking sector restructuring. Will this impact the capital supply?
Vietnamis currently home to 62 banks. Apart from state-run Vietnam DevelopmentBank, Bank for Social Policies and Cooperative Bank of Vietnam, thereare 39 commercial joint stock banks, 14 foreign banks and branches and 6joint venture banks.
It is hard to put a number on how manybanks are needed to sufficiently supply capital for the whole economy asthe scope and scale of the banks and the overall system play majorfactors in this calculation.
If banking sector shake-upscontinue, the country would only need around 30-40 strong banks withexpansive networks to serve the capital needs of businesses,organisations and individuals.
On the other hand, if there were ahundred banks smaller in scale and only concentrating on particularregions the economy may not get the supply it needs.
Vietnam’sGDP rose from 104 billion USD in 2010 to 176 billion USD in 2013 with anestimated 186 billion USD in 2014. Do you think that rather thanmergers there should be comprehensive measures to push bank growth tomeet the capital demands once the economy reaches 250-300 billion USD insize.
When Vietnam’s economy hit the 100 billion USD mark forthe first time in 2010 there were nearly 100 banks. Many of these wereunderperforming, resulting in the government looking to reduce thenumber to boost efficiency.
The banking sector restructuringprocess has created an environment where the government isn’t obligatingbanks to merge or sell but has rather created a transparent andimpartial market where they are forced to compete and pay closeattention to their shake-up plans.
M&A [mergers &acquisitions] is only one measure of many being used to restructurebanks. But based on current conditions, the government may encouragebanks such as Vietcombank, BIDV, Vietinbank, Agribank and MHB to buystakes in underperforming banks or even buy-out weak banks to pushforward restructuring and cut down on the total number of banks.
Inthe near future, once GDP is 2-3 times its current level, only 30-40banks with nationwide networks will be needed to satisfy customerdemands.
*But currently bank branches and transaction offices arenearly all located in urban centres with very few in rural areas,right?
Urban areas host a slew of banks, but with 5-7 percent GDP growth a year, they will likely have to open up even more offices.
Inthe near future, most payment services will have to go through banksand card and other non-cash payments will likely become increasinglypopular. Banks will play the role of cashiers for the economy as wholeand the individuals therein. By that time the current system of bankbranches and ATMs may not be able to keep up with rising demand.
*Someexperts say that M&A does not always produce a healthier bankingsystem but rather is a way for ‘two feeble banks to support each other’.Do you hold same view?
I don’t think so. Realistically, banks inthe post-merger period will likely be stronger in terms of capitalsources and network, the two most important factors in a bank’soperation. Stronger entities will drive competition and strengthenweaker institutions.
For example, before a merger an area mayhave two different bank branches and transaction offices that competewith each other as well as personnel at their headquarters. Aftermerging the costs will be halved and operations will be efficient on theback of lower operating costs.-VNA
