Transfer the “zero-VND” banks: Business expansion opportunities for the receiving banks

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Three “zero-VND” banks have not yet had positive business results. Photo: Internet

Lots of information revealed

In the additional assessment report on the implementation of the 2021 Socio-Economic Development Plan and the implementation of the recently issued 2022 Socio-Economic Development Plan, the Government said that it had proactively and actively implemented many solutions to handle the three compulsory purchase banks and Dong A joint-stock commercial bank.

Specifically, it has been looking for partners, negotiating with domestic and foreign investors who wish to participate in bank restructuring; rearranging the operation network, reducing costs, and deploying safe business activities that are drastic, prudent, and strict. Accordingly, the management agencies have reviewed and completed the restructuring plan in accordance with the new orientation, including the handling plan for Construction Bank (CB) and Ocean Bank.

Previously, at this year's General Meeting of Shareholders, three banks disclosed information related to the plan of forced transfer of a weak credit institution, including MB, Vietcombank, and VPBank.

Although the leaders of these three banks did not disclose the specific name of the bank they would support when responding to shareholders, according to previously disclosed information, MB could accept the compulsory transfer of OceanBank. For Vietcombank, when CB was compulsorily acquired at the price of “zero VND” in 2015, Vietcombank was appointed to assist this bank in restructuring.

Responding to shareholders at this year's General Meeting of Shareholders, Pham Quang Dung, Chairman of Vietcombank's Board of Directors, said that the bank was implementing necessary procedures to submit to the competent authorities for the compulsory transfer.

As for VPBank, there has been no information on the transfer and support of a weak bank. At the General Meeting of Shareholders, responding to shareholders, Ngo Chi Dung, Chairman of VPBank's Board of Directors, said that this activity was still in the research process, so it was not possible to publish more details.

Opportunity to increase business scale

The forced transfer of a weak credit institution was expressed by the leaders of the above banks as an important political task. But this will be different from mergers and acquisitions (M&A) or a healthy bank "carrying" a weak but related bank in the past as in the case of SHB receiving the merger of Habubank, and the M&A between HDBank and DaiABank.

Currently, Vietcombank, VPBank, and MB are all big units and their profit in the first quarter of 2022 is in the top five of the banking system. In which, VPBank has "displaced" Vietcombank to become the most profitable bank with VND11,146 billion in profit, up 178%. Vietcombank was in second place with VND9,950 billion in pre-tax profit, up 15%. MB ranked 4th with nearly VND6,000 billion, up 29% over the same period in 2021.

Despite such health, having to "carry" a weak bank still makes many shareholders concerned and they want to have further information. In particular, the handling of three “zero-VND” banks, namely OceanBank, CBBank, and GPBank has not been satisfactory after more than seven years.

For example, OceanBank still continuously suffered losses, even though in 2021, this bank said it had the lowest loss since 2016, as well as continuously reducing accumulated losses in the past four years.

MB's management expressed their belief that the forced transfer of a credit institution would give MB opportunities to grow in scale by 1.5-2 times higher than the average growth rate of the market in the long term. Luu Trung Thai, Vice Chairman of the Board of Directors and General Director of MB, said this transfer would not affect MB's financial ratios because it did not have to consolidate financial statements. Simultaneously, MB is not required to calculate the financial ratios of the transferee when calculating capital adequacy ratios. The capital contribution to a credit institution that receives a compulsory transfer is also not required to make a provision. However, the implementation process is expected to last 8-9 years, which may be faster or slower, then conduct mergers and consolidation of financial statements.

Similarly, according to the leader of Vietcombank, thanks to the support in accordance with the regulations, the processing time will not exceed 8-10 years to turn these institutions into healthy and functioning credit units. Moreover, this mandatory transfer helps Vietcombank expand its business scale, customer base, and network, then may accept to merge or maintain the credit institution as a subsidiary bank or sell/transfer the credit institution to a new investor.

Additionally, as a rule, after receiving a compulsory transfer, participating banks will receive many priorities from the management agency such as being approved for loans exceeding the credit growth limit if they meet the capital adequacy ratio as prescribed; and opening more branches.

Policies on dividends, distribution of after-tax profits, and setting up of funds are not dependent on or affected by the forced transfer and are independent from the business results of the credit institution during the implementation of receiving the compulsory transfer.

Regarding this issue, economic expert Assoc. Prof. Dr. Dinh Trong Thinh said that the forced transfer of a weak bank to a healthy bank will increase the ability to restructure, help weak banks have the financial strength and professional management, thereby helping to stabilize and secure the system, because banking is a business with special conditions, if a bank goes bankrupt, it will also affect the macroeconomy. However, many also said that the transfer and restructuring should be done carefully and scientifically because the economy is in a difficult period due to external influences.