M&A wave set for banking sector in 2020

Thứ hai - 18/03/2019 02:19 207 0
2020 is believed to bea do-or-die year for banks since the SBV has decreed that they must all meetglobal capital adequacy norms, according to analysts. 
 
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The SBV has decreed that banks must all meet global capital adequacy norms - Photo: VNA

A wave of mergers and acquisitions (M&A) thus appearsimminent.

According to Circular No 41/2016/TT-NHNN, banks must have acapital adequacy ratio (CAR) of at least 8 percent from January 1, 2020, asstipulated under BASEL II standards.

Basel II is the second edition of the Basel Accords, whichare recommendations on banking laws and regulations issued by the BaselCommittee on banking supervision.

Four years ago, the central bank selected the first 10commercial banks to pilot Basel II standards. But to date only VIB and Vietcombankhave joined the pilot scheme successfully while other lenders involved in theplans failed.
Analysts said to meet Basel II standards banks need toincrease their capital but many, particularly the smaller lenders, have foundit difficult to do so.

Last year, 18 out of the country’s 34 banks received approvalfrom their shareholders to hike their capital, with their combined increaseexpected to be nearly 63 trillion VND (2.74 billion USD).
But only a few of them, mainly large and medium-sized ones,realised these plans. 

Analysts pointed to certain reasons for others’ inability,one of which was the plunging stock market, which has spookedinvestors.  

In raising capital on the stock market, small banks arealways at a disadvantage compared to big ones. Their shares are less attractiveto investors because their dividend yields arelow.      
                     

Another difficulty facing the banks is that the Governmentrequires State-owned companies to pull out of non-core businesses includingbanks.

Foreign financial institutions are cautious about investingbecause of the unstable global financial situation. Because of this, manyprefer to open a branch or establish a subsidiary rather than buy stakes inVietnamese banks.

Banks that cannot increase their capital to the prescribedlevel would have only one option: to minimise their risk-weighted assets. 

This means they would have to reduce credit growth.

Banks in the country still derive their revenues mainly -- 70and 80 percent -- from credit activities.
With revenues and profits down, it would be harder for themto mobilise capital.

Small banks might have to accept being merged with oracquired by other banks, sparking a new wave of M&As in the industry,analysts said.

Source: VNA

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