Banks forced to merge to settle circular ownership status

09:42 | 02/07/2015 Finance - Banking

The State Bank of Vietnam (SBV) has taken a series of actions to clear cross-ownership which has existed in the banking system for many years.

Banks forced to merge to settle circular ownership status

The merger of Mekong Bank into Maritime Bank, the two banks with the same owner, is expected to be followed by five to six merger deals, Dau Tu has quoted its sources as saying. 

These include the merger deal of Southern Bank and Sacombank. The merger has attracted the special attention from the public because they both relate to a big name – Tram Be, one of the most influential businessmen in Vietnam. 

Tram Be and his family members are reported to hold 20% of Southern Bank shares and 6% of Sacombank’s.

Once the two banks merge with each other, the expected share conversion ratio is 1:0.75 (Southern Bank/Sacombank).

The tentative conversion ratio has angered Sacombank’s shareholders. However, analysts noted that once the same big shareholders hold shares in both banks, they will have the right to make decisions. 

A report of the State Bank showed that the cross-ownership existing in Vietnamese banks has reduced significantly after three years of speeding up the banking system restructuring. 

With the Circular No 36 which took effect in early February 2015, banks have one year to reduce the capital they had contributed to other credit institutions to the allowed levels.

Eximbank, for example, now holds 9.7% of Sacombank’s shares, and it is now trying to withdraw capital from Sacombank within one year since the day the Circular No 36 took effect.

More recently, the State Bank released Circular No 06 which takes effect on July 15, 2015, urging banks’ shareholders to reduce the ownership ratios to the permitted levels by the end of the year. 

The request is believed to aim to clear the existing circular ownership in banks.

The circular stipulates that the State Bank will make necessary interventions if banks’ shareholders do not obey the request by the end of the year. The banks will be forced to undergo the compulsory restructuring.

According to the State Bank, five joint-stock banks have been found as having inpidual and institutional shareholders holding more than five and 15% of chartered capital, respectively. Meanwhile, eight banks have been found as having groups of shareholders holding more than 20% of chartered capital.

Nguyen Van Thuan from HCM City Open University, while emphasizing that it is necessary to clear cross-ownership, warned that the State Bank’s instruction will place big difficulties for commercial banks.

“They would need time to find partners and set up reasonable selling prices, especially when the bank share prices are on the decrease,” Thuan said./.

Source: Vietnamnet