UNIVERSITY OF ECONOMICS FACULTY OF FINANCE & BANKING GRADUATION THESIS ON THE FINANCIAL PERFORMANCE OF ACQUIRING BANKS IN BANK SYSTEM IN VIETNAM SUPERVISOR : DR. NGUYEN THI NHUNG STUDENT’S NAME : NGUYEN THUY LINH STUDENT’S ID : 17050751 CLASS : QH2017E - TCNH CLC (TT23) Ha Noi, March 2021 ACKNOWLEDGEMENT A completed study would not be done without any assistance. Therefore, the author who conducted this research gratefully gives acknowledgement to their support and motivation during the time of doing this research as a requirement of completing my Thesis. The author would like to thank the Board of the University of Economics and Business — Vietnam National University for creating favorable conditions for the author to complete this thesis.
The author also would like to thank the lecturers of the Faculty of Finance and Banking, University of Economics and Business — Vietnam National University for their help the author in the thesis implementation process. In particular, I would like to express my endless thanks and gratefulness to my supervisor Dr. Nguyen Thi Nhung. Her kindly support and continuous advices went through the process of completion of my thesis.
Her encouragement and comments had significantly enriched and improved my work. Without her motivation and instructions, the thesis would have been impossible to be done effectively. Thank you very much! Author/Student Supervisor (Sign, Full name) (Sign, Full name) Nguyen Thuy Linh Dr. Nguyen Thi Nhung TABLE OF CONTENTS LIST OF ABBREVIA TIƠN.
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M&A in Banking sector in Vietnam during the period 2011-2020. M&A deals of Banking sector in the period 2011-2020. Impacts of M&A on financial performance of acquiring banks in M0. Ratio trend analysis of acquiring banks.
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Recommendations to the State Bank 00. ee leeeesceseesneeeneeeseeeeaeeesees 90 REFERENCES1. 92 APPENDIX LIST OF ABBREVIATION Terms Explain M&A Mergers and Acquisitions SCB Saigon Commercial Joint Stock Bank SHB Saigon Hanoi Bank Ho Chi Minh City Development Joint Stock Commercial APB Bank Joint Stock Commercial Bank for Investment and BIDV Development of Vietnam MSB/Maritime Bank | Vietnam Maritime Commercial Joint Stock Bank STB Saigon Thuong Tin Commercial Joint Stock Bank PG Petrolimex Group Commercial Joint Stock Bank Ficombank First Joint Stock Commercial Bank Tin Nghia Bank Vietnam Tin Nghia Bank Habubank Hanoi Building Commercial Bank PVFC PetroVietnam Finance Corporation ROA Return on assets ROE Return on equity SBV State Bank of VietNam LIST OF TABLES Table 1.1: Research results about impacts of M&A on the aquiring banks .2: Indicators measuring financial bank performance and M&A impacts.3: Entities involved in the merger and acquisition Process .4: Distinguish M&A and commercial bank M&A .1: SPSS Pair Samples S(af{IS(ICS.2: SPSS Pair Samples correlations .3: SPSS Pair Sample “T-f€S(.- - 5c 11921112 11 911 911101 ng ng ngư 75 il LIST OF FIGURES Figure 2.-- -- + + + E111 3 1 939v 31h nh ng ng nkp 42 Figure 3.1: ROE of acquiring banks from three years before and six years after lil INTRODUCTION 1. Reasons for the study The period before 2012 was the booming period of commercial banks in Vietnam.
By the end of this period, the total number of Vietnamese commercial banks reached 42 banks. Many commercial banks were established on a small scale, had encountered difficulties in capital mobilization and lending activities. That leaded to the need to raise deposit rates, increase mobilized capital from the subprime market. The inevitable consequence was that the bad debt ratio of the credit institutions increases, the liquidity of the system was unstable, etc.
At the same time, there was the world banking and financial crisis in 2008, causing the Commercial banks in the Vietnamese commercial banking system have a bad influence. The wave of foreign banks in the international economic integration trend was both an opportunity and a challenge, creating a fiercely competitive environment for the Vietnamese banking system. In addition, the increasing demand for modern banking services had exposed many limitations to the domestic banking system. Especially, for banks with small capital, the competitiveness was weak; poor management skills.
Business activities were fragmented; poor backward technology, and the quality of products and services was still too far away from modern banking services in the world, etc. The inevitable consequence was that many banks had to face great risks, standing on the brink of bankruptcy. Facing these impacts, the banking system still had potential problems with cross-ownership, high NPLs, as well as the poor financial capacity of some commercial banks. Therefore, on March 1, 2012, the Government implemented the Project on restructuring the credit institution system (CIs) with Project 254 and Strategy for the development of Vietnam's banking sector until 2025, to towards 2030 according to Decision 986 / QD-TTg dated August 8, 2018.
Accordingly, commercial banks continued to be restructured with the focus on basic and thorough handling of bad debts and weak credit institutions by suitable forms according to the market mechanism, etc. , reducing the number of weak groups, credit institution in order to have a suitable number of credit institutions with healthy operations. The State Bank of Vietnam encouraged financial institutions to voluntarily contact each other for acquisitions, mergers and consolidations based on rules that guarantee the legal rights and interests of the parties involved. This is one of the top choices for restructuring the Vietnamese banking industry.
The Vietnamese banking system recorded 7 successful M&A deals with the participation of 14 commercial banks, leading to reduce by 7 commercial banks in Vietnam. Among them, only two deals between HDB and Dai A Bank, as well as between Sacombank and Southern Bank were voluntary. The remaining deals were all mandatory because of the weaknesses of acquired banks. So far, the M&A process at commercial banks in Vietnam ended with 2 phases: Phase I (2011- 2015), Phase 2 (2015-2020).
This is the perfect time to systematically evaluate the Bank M&A deals in the restructuring process, from there, make conclusions and recommendations to improve the financial efficiency of M&A activities in the banking system. Starting from the above-mentioned issues, I conducted a thesis on “Impact of mergers and acquisitions on the financial performance of acquiring banks in bank system in Vietnam ”. Objectives of the study The research mainly aims to evaluate impacts of M&A activities on the financial performance of acquiring banks in Bank system in Vietnam during the period from 2011 to 2020. Specifically, the thesis tries to point out theories about M&A activities, financial performance of Vietnamese commercial banks as well as the relationship between M&A and the efficiency of banking financial operations.
Research and analyze trends of ROA, ROE, NIM indicators to evaluate their effects in the pre- and post-M&A period. Then, the study asseses the impact of M&A activities on the financial performance interm of profitability of aquiring banks by comparing 3 indicators (ROA, ROE, NIM) of the aquiring banks before and after M&A. Another purpose for this research is to propose a number of solutions to improve the effectivenesse of M&A activities in the banking system in Vietnam. Questions of the study The research will try to answer two main questions, such as: (a) How do M&A activities have impacts on the financial performance of acquiring banks? (b) What recommendations should be made to improve the financial effectiveness of M&A activities in the banking system in Vietnam? 4.
Objects and scope of the study 4. Objects of the study This research focusess on the impact of M&A on financial performance of 6 acquiring banks in Vietnam. Scope of the study All financial performance’s ratios such as ROA, ROE and NIM are calculated for all 6 acquiring banks, including: (i) Saigon Commercial Joint Stock Bank (SCB); (1) Saigon Hanoi Commercial Joint Stock Bank (SHB); (iii) Ho Chi Minh City Development Joint Stock Commercial Bank (HDB); (iv) Vietnam Maritime Commercial Joint Stock Bank (MSB); (v) Joint Stock Commercial Bank for Investment and Development of Vietnam; (vi) Saigon Thuong Tin Commercial Joint Stock Bank (STB)) before and after the successful M&A deals with a period of pre-M&A 3 years and post-M&A 6 years from 2012 to 2020. Value of the study In the light of the fact that mammoth resources both financially and non financially are usually committed to effectively implement mergers and acquisitions, it is noteworthy to establish the actual impact of M&A on the financial performance of Commercial banks in Vietnam.
The submission of this fact will be of significant use to the following: Policy Makers The research to assess the impacts of M&A activities on Bank performance, will allow the policy makers to set new standards in establishing an appropriate level of merger and acquisition. The findings would be used to come up with more effective methods of managing liquidity levels of a firm. Investors and Customers The study will add knowledge on the understanding of the importance of mergers in analyzing performance by current investors, customers of commercial banks and other banks in this competitive industry. Researchers The study would provide a base for further research especially in the areas of merger and acquisitions for researchers interested in building on the already existing knowledge base about theoretical and empirical work on the impacts of mergers and acquisition on the financial performance of commercial banks.
Organization The research will propose a number of solutions to improve Banking performance. It will be of benefit to executives and managers of the commercial banks as the study would cover banks that have recently merged and their relative performance. Academicians The findings of this study would make contributions to the existing paradigm on investor’s behavior toward the mergers, acquisition and restructuring of banks. It would also be used to establish the research gaps and provide reference for further research under the field of merger and acquisition.
Research structure Chapter 1 : Literature review and Theoretical framework Chapter 2 : Methodology Chapter 3 : Reserach results Chapter 4 : Discussion and recommendation CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK 1. Literature review about impacts of M&A on financial performance of acquiring banks 1. Researches about M&A and impacts on acquiring banks’ activities Globalization, advances in information technology and financial crises in the last two decades have changed banking in many countries profoundly and forced the national banking authorities to deregulate and restructure domestic banking industries. In this situation, M&A is considered as an effective tool in many countries and the outcomes of M&A are the main topic of academic studies around the world.
M&A has an effect on the whole process of re-constructing banking system in many countries. Hernandez et al.