Lessons Learned From Related Studies For M&A Activities In Vietnam

Direct administrative determination of service costs and prices : Service taxes and fees in most banks are determined by central banks and are uniform for all banks. This contributes to the deterioration of the quality of services provided to customers.

Administrative inefficiency : This is reflected in overstaffing, under-skilled staff and low wages.

Through the study, the author suggests that supervisory agencies should accelerate the implementation of Basel II recommendations to improve internal control and maintain high capitalization of the banking system. The continuous implementation of Basel II agreements helps improve operational risk management which is directly related to the management quality of banks. These recommendations will allow banks to introduce stricter regulations with internal risk measurement and improve operational procedures to avoid falling into a state of exhaustion, ensuring the stability of the banking system.

Muliaman D. Hadad, Maximilian JB Hall, Wimboh Santoso, Richard Simper, Economies of scale and a process for identifying hypothetical merger potential in Indonesian commercial banks , Journal of Asian Economics, 2013. The author's purpose in this paper is to determine whether M&A transactions help banks save costs through economies of scale. The results of the paper show that the benefits of economies of scale are mainly found in the smallest and largest banks. In addition, the author also found that there are no economies of scale in M&A transactions of state-owned banks and foreign-exchange private banks, whereas mergers between small non-foreign-exchange banks have a significant effect on cost savings.

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Ioannis Asimakopoulos, Panayiotis P. Athanasoglou, Revisiting the merger and acquisition performance of European banks , International Review of Financial Analysis, 2013. In this paper, the authors examine the value creation of M&A transactions in the European banking industry during the period 1990 - 2004. This is

This is done, first, by examining the stock price reactions of banks to M&A announcements and, second, by analyzing the determinants of this reaction. From the study, the authors draw five conclusions:

First , an M&A announcement does not appear to create value for the acquirer's shareholders, whereas it does create significant value for the targets' shareholders.

Second , cross-border M&A deals, especially M&A between banks, do not create value for the acquiring shareholders, who prefer their banks to operate only in the domestic market, due to investors' concerns about information transparency in cross-border transactions as well as their belief that differences in cultural, legal, and accounting factors between countries will work against the success of growth potential and cost reduction.

Third , for the acquirer's shareholders, M&A deals between banks listed on the stock market will be more beneficial than those between unlisted target banks due to concerns about information asymmetry.

Fourth , shareholders of target banks earn significant abnormal profits in all cases (cross-border or domestic M&A).

Fifth , the acquirer's shareholders seem to benefit from banks that are smaller in size and have less profit from non-interest activities and are best listed on the stock market. However, they are also concerned about the low liquidity, low efficiency and high credit risk of these target banks.

2.3.2 Lessons learned from related studies for M&A activities in Vietnam

The results drawn on bank M&A activities from related research papers are as follows:

 The M&A wave, especially in the banking sector, occurs most frequently in the world in the post-financial crisis periods.

 M&A is one of the important strategies of the central bank to restructure the banking system in countries with weak banking systems and low asset quality. The goal is to help the banking system develop more stably and safely through M&A, avoiding the risk of system collapse.

 The most visible benefit of bank M&A activities is to help the buyer bank increase its capital scale, increase its competitive strength in the market and improve cost efficiency.

 There is no evidence of an increase in bank profits after M&A in the short and medium term; even in the long term, an increase in profits is not guaranteed.

 Shareholders of the target bank (the seller) will gain significant benefits in M&A deals, while shareholders of the acquiring bank often receive negative impacts on earnings, at least in the short and medium term.

 Successful M&A transactions between banks are often between small-sized and inefficient banks and large-sized and above-average-efficient banks, especially beneficial for banks listed on the stock market to reduce the risk of information asymmetry and false information.

 The success rate that acquiring banks have in M&A deals in the world is not high, only about 50%. Through that, we can see the huge risk for acquiring banks when conducting M&A.

From there, the author has drawn lessons on M&A activities for the Vietnamese commercial banking system, as follows:

 Firstly, the State Bank must have clear and specific directions to strongly promote M&A activities in the Vietnamese banking system as a measure to help restructure the banking system in order to

help improve the poor business performance of banks in the 2011-2015 period as well as improve the financial situation of Vietnamese commercial banks, increase competitiveness, thereby helping to stabilize the banking system, especially small and medium-sized banks.

 Second, large banks (acquiring banks) must have thorough preparation and sufficient resources before conducting M&A to be able to immediately handle difficulties encountered after M&A, especially bad debt, lack of professional skills as well as management skills and financial skills of target banks.

 Third, achieving success in an M&A deal is a very difficult problem. Therefore, before conducting an M&A, banks must have a correct assessment and perception of the advantages and disadvantages of an M&A deal, especially for acquiring banks.

 Fourth, the disagreement in benefits gained from M&A deals between shareholders of the acquiring bank and shareholders of the target bank is also a major problem that prevents banks from successfully conducting M&A.

 Fifth, M&A deals will be more successful in M&A deals between small banks and large banks, listed banks than unlisted banks.

 Finally, bank M&A deals will be more likely to succeed when the banks participating in the M&A have similar characteristics in terms of culture, human resources and technology.

Chapter Conclusion

The most important point in the essay on M&A activities in banks in Vietnam is to emphasize the role of M&A activities as one of the most important strategies in the process of stabilization and development of Vietnamese commercial banks in the period 2016-2020.

M&A classification is divided into 3 main forms, including:

 Horizontal M&A.

 Vertical M&A.

 Consortium M&A.

M&A implementation methods of banks include 5 main methods, including:

 Bid.

 Voluntary negotiation.

 Attracting disgruntled shareholders.

 Purchase on the stock market.

 Purchase assets.

The M&A process is divided into 5 stages, including: Pre-M&A preparation, selecting a target bank, implementing the M&A deal, negotiating detailed terms, signing the contract and post-M&A integration.

The main drivers for conducting M&A include:

 First, avoid the risk of bankruptcy.

 Second, improve competitiveness.

Limitations in M&A activities

 Negative impact on the rights of minority shareholders.

 Conflicts between major shareholders.

 Disruption in corporate culture.

 The departure of good and talented employees.

CHAPTER 3 : CURRENT STATUS OF MERGER AND ACQUISITION ACTIVITIES OF VIETNAMESE COMMERCIAL BANKS IN THE PERIOD 2011-2015

3.1 General introduction

In chapter 2, the author has introduced an overview of the theoretical basis of the contents related to M&A activities. In chapter 3, the author wants to delve into the specific research of the M&A activities of the banking industry in the period 2011-2015, especially focusing on M&A deals between Vietnamese commercial banks. The goal of this chapter is to have a more realistic view of the developments in the banking market and the developments of M&A deals of Vietnamese commercial banks. From there, the author can make his own analysis and assessment through synthesizing information and multi-dimensional opinions of financial and banking experts to be able to make the most general comment on M&A activities of banks in Vietnam in the period of 2011-2015, the positive aspects as well as the limitations of M&A deals, thereby, the author can propose solutions to help M&A activities of Vietnamese commercial banks to be successful in the post-M&A period and develop further in the coming time - the period of 2016-2020.

3.2 Current status of banking industry operations

In the context of the Vietnamese economy newly integrating with the world economy as it is today, the role of the Government and the State Bank in orienting and promulgating policies and legal corridors has a great influence on the direction and development of the Vietnamese banking system. Therefore, before going into the study of the current status of M&A activities of Vietnamese commercial banks in the period 2011-2015, the author would like to briefly mention the historical context of the Vietnamese economy in general and the banking industry in particular in this period so that everyone can have a more general perspective, can recognize the causes and origins for the development of M&A activities in banks in Vietnam in recent times. Important milestones

The year 2009 marked a turning point in the Vietnamese banking system, originating from the global financial crisis that broke out in late 2008 in the US, culminating in the collapse of Lehman Brothers Bank in the US, which created a wake-up call for the banking and financial systems of all countries in the world. Therefore, the author will introduce the historical context of the Vietnamese economy, especially the banking industry from 2009 to September 2015 so that everyone can have a more comprehensive view of the operating situation and direction of the banking industry during this time.

Year 2009

Facing the risk of economic recession due to the impact of the global economic crisis, the Government and the State Bank of Vietnam have launched a stimulus package worth 8 billion USD to help the economy overcome this difficult time. The Government and the State Bank have implemented these quick and timely management policies, which have brought about initial results during the period of global economic downturn (GDP growth for the whole year of 2009 was at 5.32%, higher than the set target of 5%). The results of the 8 billion USD stimulus package have helped the banking industry in 2009 achieve very positive results. Specifically, according to the State Bank's report, the total means of payment for the whole year of 2009 is estimated to increase by 28.67% compared to December 2008; capital mobilization increased by 28.7%; credit increased by 37.73% (exceeding the credit growth target of 30%), equity of the entire system of credit institutions increased by 31.9% compared to the end of 2008; total assets increased by 26.49%, the difference between revenue and expenditure increased by 53.09%, the bad debt ratio was at 2.2%. However, along with the effectiveness of the stimulus package helping the economy escape recession are concerns about inflationary pressures from both demand-pull and cost-push in the following years. Therefore, the urgent issue for the Vietnamese economy in 2010 is whether to continue with the second stimulus package when the Vietnamese economy has shown positive signs of recovery, along with the urgent need to comprehensively restructure the entire post-crisis economy, shifting from horizontal development to in-depth development, from processing to manufacturing; participating in the global value chain; shift the economy from tax to

from dependence to interdependence in the integration process to establish the position of the Vietnamese economy in the post-recession period in the international arena.

2010

The policies of the Government and the State Bank of Vietnam in 2010 were not decisive and had unclear orientations when they introduced policies to control inflation (due to the impact of the 2009 stimulus package, typically controlling the credit growth rate of the entire banking system at 25%, issuing Circular 13 and Circular 19 regulating the safety ratios in the operations of credit institutions, requiring all banks to achieve the minimum prescribed capital level).

3,000 billion VND by the end of 2010...) and has just launched a second stimulus package to achieve GDP growth of 6.5% for the whole year. The consequences of the lack of clarity in this policy and direction of the Government and the State Bank of Vietnam have caused the Vietnamese economy in 2010 to fall into a state of instability, specifically, the high inflation rate of 12%/year (5% higher than the target set at the beginning of the year of 7%/year), exchange rates and interest rates fluctuated strongly during the year. Particularly in the banking sector, 2010 is the year of the race to expand the scale of Vietnamese commercial banks to complete the target of increasing the minimum charter capital to 3,000 billion VND set by the State Bank of Vietnam. As a result, commercial banks have mainly focused on rapidly increasing the scale of their networks and assets, focusing on lending to high-risk areas such as securities and real estate while the risk management capacity of credit institutions is still limited... In addition, the awareness and seriousness in complying with the instructions of the Government and the State Bank of Vietnam in some banks are not high, have not demonstrated a sense of full responsibility for system safety, especially have not seriously implemented the consensus commitments of the Vietnam Banking Association, causing instability in the safety of the system. Although this can be considered the most difficult year for the Vietnamese economy since opening up to international integration, it is also a very favorable opportunity for the Government and the State Bank to carry out the comprehensive restructuring of the Vietnamese economy with three focuses: restructuring public investment, state-owned enterprises and the banking system.

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