Some Mergers and Acquisitions in Vietnam's Banking Industry from 2007 to Present

12 1588 1500

10

8 6 1000

6 5

4 3 3 500

2 0 1

0 88 79 27 47 0 29 0

1 2 3 4 5 6 7

Source: Asia Venture Capital Journal, PWC Asia Financial Services M&A Report, StoxPlus Vietnam, Capital IQ

Chart 3.1. M&A situation at Vietnamese securities companies from 2007 to 2013

The reason for the low number of transactions at securities companies is that many securities companies with banks behind them often do not have the need to acquire to increase capital, and the need for capital is only a concern of small securities companies. Thus, most M&A deals in the securities sector are mainly acquired by domestic and foreign financial institutions and banks, who buy back shares of securities companies when they want to enter the Vietnamese securities market, not because securities companies want to merge with each other to increase competitiveness or strengthen financial capacity.

In 2012 and 2013, the M&A market in the securities sector was still very gloomy when the market in 2012 did not record any transactions in the securities industry and in 2013 there was only one transaction, MBS Securities JSC acquired the entire VIT Securities JSC. This explains why the securities market still has many difficulties and low liquidity.

Therefore, to create “creative destruction”, the need for M&A is inevitable. However, there is currently no document specifically guiding M&A activities for the securities companies, but there are still general legal regulations governing mergers and acquisitions in the 2005 Enterprise Law. Currently, many securities companies are in a deadlock and have stopped operating or cut all operations. This is creating a great waste for society because a large amount of capital of these securities companies is stuck. Unblocking mergers and acquisitions of securities companies not only helps securities companies overcome difficulties, but also serves as a basis for building a sustainable Vietnamese financial system.

As for insurance companies, from 2007 to 2013, M&A transactions in the insurance sector were quite sparse, with only a few deals.

M&A situation in Vietnamese insurance companies from 2007 to 2013

3.5

3

2.5

2

1.5

1

0.5

0

3

3

265

300

250

200

150

1

88

100

27

0

50

0

2007 2008 2009

11

2010

0

2011

2012

2013

Number of deals Deal value

2

2

105

1

93

Source: Asia Venture Capital Journal, PWC Asia Financial Services M&A Report, StoxPlus Vietnam, Capital IQ

Chart 3.2. M&A situation at Vietnamese insurance companies from 2007 to 2013

Table 3.3. Some typical M&A deals in the insurance industry from 2005 to 2013

Year

Source: Asia Venture Capital Journal, PWC Asia Financial Services M&A Report, StoxPlus Vietnam, Capital IQ

Among the few M&A deals taking place in the insurance industry, the one that is considered quite successful is the acquisition of Bao Minh Life Insurance Company by DaiChiLife - Japan. After 6 years of the merger between Bao Minh CMG and DaiChiLife, the company's revenue and profit continued to increase and affirmed itself as a major brand in the market with an average revenue and profit growth rate of 27.7% and 30% in the 6 years after the merger. Dai-ichi Vietnam is the only company that has made a profit after two years of operation in the Vietnamese market. After 7 years, the total revenue from insurance premiums reached nearly 4,000 billion VND, the total assets managed and invested by the company exceeded 300 billion VND.

The rapid growth in the number of insurance companies concentrated in the recent period has led to a shortage of qualified and skilled human resources. In addition, there is the phenomenon of unhealthy competition such as reducing fees, increasing commissions, promotions, expanding insurance terms... All these problems are happening in the insurance industry,

Especially in non-life insurance, this also requires insurance companies in the market to join hands, possibly through mergers or consolidations to form companies with healthy competition in the domestic and international markets.

With the current policy of restructuring the Vietnamese banking and financial market, the competent management authority is also allowing Vietnamese banking and financial institutions such as commercial banks, securities companies, and insurance companies to proactively seek their own partners, which can be domestic or foreign, but finding foreign partners is more difficult because it depends on the regulations on share ownership ratio. M&A in the banking and financial sector depends on two factors: the stability of macro management and the determination of the organization's executives. In fact, the number of M&A deals today does not accurately reflect the market demand because some financial institutions still have a wait-and-see mentality. From the statistical reality of the experience of handling financial crises in countries in the region and around the world, it can be clearly seen that M&A is the shortest way for banking and financial institutions to restructure themselves to quickly escape the crisis and prepare for a new development stage. This is also a good business opportunity for potential financial institutions, helping to grow, take shortcuts, and get ahead in the fastest way.

Through research on the current status of mergers and acquisitions in the Vietnamese banking and finance sector from 2007 to present, it can be seen that mergers and acquisitions in the Vietnamese banking and finance sector have the following main characteristics:

Firstly, regarding the legal framework, during this period, most of the financial sector transactions were still carried out based on the general legal framework for equitization, issuance and listing of shares on the stock market such as the Enterprise Law 2005, Investment Law 2005, Competition Law 2004, Securities Law 2006, there was no specific set of laws regulating mergers and acquisitions in the financial sector. In addition, there are many contradictions in the interpretation of the provisions between the laws, which have been causing certain limitations and impacts on the increase of M&A transactions in the financial sector.

Second , in terms of mergers and acquisitions, most of the mergers and acquisitions transactions in the Vietnamese market are mainly share transfers, capital acquisitions, and some transactions in the form of mergers such as the HBB and SHB transactions.

LienVietBank and Postal Savings Service Company... But in general, the mergers and acquisitions are mainly in the initial form of buying back shares and capital contributions, and there are not many real mergers or consolidations of enterprises.

Third , in terms of implementation methods, most of the mergers and acquisitions in Vietnamese banking and financial institutions in recent times have been more friendly than mutual acquisitions. The methods commonly used are mostly joint ventures, associations, and cooperation between the parties or just stop at buying back capital contributions on the stock market or negotiating directly with the organization's executive board. Some typical deals that have been highly appreciated in the recent period include HBB selling 20% ​​of its shares to Deschebank, Techcombank selling 20% ​​of its shares to HSBC, and ABBank selling 20% ​​of its shares to Maybank. The merger of three banks, including Saigon Commercial Joint Stock Bank (SCB), Vietnam Tin Nghia Commercial Joint Stock Bank (TinNghiaBank) and First Commercial Joint Stock Bank (Ficombank), and the merger between Western Bank (WesternBank) and PetroVietnam Finance Corporation (PVFC) are M&A deals with a "structural" color, stemming from the restructuring and healthiness requirements of the financial market by competent authorities. The merger of Hanoi Housing Commercial Joint Stock Bank (Habubank) into Saigon Hanoi Commercial Joint Stock Bank (SHB), although also having a "structural" tendency, basically shows the commercial color of a friendly M&A transaction. The Eximbank deal representing a group of major shareholders buying and acquiring Sacombank has a hostile M&A commercial color. The deals of Mizuho Corporate Bank buying 15% of Vietcombank's shares for 567 million USD and Tokyo-Mitsubishi UFJ buying 20% ​​of Vietinbank's shares for 743 million USD have the color of strategic M&A on a "friendly" basis and are considered mega deals in M&A in the banking and finance sector in Vietnam recently.

Fourthly, regarding the implementation process, in general, mergers and acquisitions transactions in Vietnamese financial institutions still do not have a standard process applied. Transactions are mainly based on enterprises' own research, self-negotiation, self-decision or through consulting organizations. This also stems from legal issues when there is no system of legal documents clearly regulating procedures and processes.