The headquarters of the Sai Gon - Ha Noi Commercial Joint Stock Bank (SHB) on Lang Ha Street, Ha Noi. The bank has seen financial results improve after running into severe liquidity problems after merging. — VNS Photo Thai Ha

HCM CITY (Biz Hub) — The new Saigon Commercial Bank (SCB), formed by its 2012 merger with two other joint stock banks, Viet Nam Tin Nghia and De Nhat, is turning things around after a difficult start.

The merger between three lenders, all of them considered weak, was the first of its kind in Viet Nam and helped the new entity expand its network and market share, improve financial capacity, and reduce costs.

But it ran into severe liquidity and bad debt problems.

A restructuring programme began soon after the integration with support from the central bank and shareholders to bolster its financial capacity and resolve the bad debts.

Things have improved, with deposits growing by 88 per cent last year. The bank has sold VND6 trillion (US$285 million) worth of bad debts to the Vietnam Asset Management Company (VAMC).

Last year it increased its legal capital by VND1.711 trillion ($81.4 million) to VND12 trillion ($571million) and a further increase of VND2 trillion ($95.2 million) is expected this year.

Its bad debts are expected to fall bellow the 3 per cent safe level regulated by the State Bank of Viet Nam, and it hopes to double gross profit to VND121 billion ($5.76 million).

Around the same time TP Bank was acquired by Doji Gold and Gems Group. Its legal capital was increased to VND5.55 trillion($264 million) from VND3 trillion ($143 million), retail deposits and credit growth doubled, and bad debts fell to 2.7 per cent from 6.4 per cent.

Last year HDBank merged with DaiABank and then acquired French group Societe Generale's SGVF financial company. This resulted in a network of over 200 branches and transaction offices besides 1,200 branches of HDFinance. Last year HDBank mobilised deposits of VND76.3 trillion ($3.6 billion) for an annual growth of 26 per cent while its outstanding loans were up 34 per cent at VND44 trillion (over $2 billion). Its return on equity was 5.66 per cent, which it hopes to increase to 9.52 percent.

Saigon – Hanoi Bank (SHB), which merged with Habubank in 2012, targets a 27 per cent growth in pre-tax profits this year to VND1.27 trillion, and expects to trim bad debt to 3 per cent.

Chairman Do Quang Hien said there are plans to increase legal capital from the current VND8.866 trillion to more than VND11 trillion before year-end to fund expansion by issuing shares to existing shareholders.

The bank also plans to boost retail banking activities and improve risk management and human-resource development to ensure growth.

Bad debts however remain a challenge to all these banks. SCB general director Vo Tan Hoang Van said his bank has managed to collect only VND200 billion ($9.5 million) out of VND6 trillion (US$285 million) worth debts that went bad.

Thouh much of the loans are backed by mortgages, it is not easy to liquidate them in this economy, he said.

By early in this quarter the VAMC had bought bad debts worth VND50 trillion from banks, which have registered to sell VND70 trillion this year.

The VAMC is in the process of reselling the debts it acquired to foreign institutions. But transparency related to the debts and the legal framework are among the issues buyers have reportedly brought up.

According to central bank deputy governor Dang Thanh Binh, several more M&A proposals are under consideration and should be wrapped up this year.

Nguyen Thuy Duong, partner in charge of financial and banking services at auditing and consulting firm Ernst&Young had said in the Vietnam Investment Review recently that before embarking on M&A deals banks should do due diligence, assessing the target bank to help the valuation and studying its development strategies to ensure synergies. — VNS