Mergers could keep small banks afloat

Wednesday, Jul 15, 2015 08:08

Customers do business at a Southern Bank branch in HCM City. The bank is projected to merge with Sacombank this year, a trend expected to help keep small banks afloat. — VNA/VNS Photo Hoang Hai

HA NOI (Biz Hub) — Small-sized banks with no specific business strategy are considering mergers, as recent consolidation in the banking sector has made it difficult for them to compete with larger banks.

The recent mergers and acquisitions wave in the banking sector has created larger banks and reordered the banking system, posing difficulties for smaller banks in competing against many larger rivals.

According to the director of a small bank, who declined to be named, it is now difficult for small banks to compete against larger banks in capital mobilisation due to their brand image.

Most depositors think that small banks are weak, and therefore such banks face challenges in capital mobilisation.

This has made many small banks, including ABBank, DongABank, NamABank and VietABank, draw up plans for a merger with another bank in the next few years, the Dien dan Dau tu (Investment Forum) newspaper reported.

Financial experts say the trend of a small bank, especially one having no specific business strategy, merging with another to become bigger is picking up, the newspaper said.

Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Programme in HCM City, said small banks had adopted the same business strategies as larger banks so that they were not at a disadvantage in competing against the latter.

It is easier for small banks to find a partner for merger when no specific business strategy is involved, than find a partner with a specific business strategy, according to Thanh.

This is the reason the banking sector has seen many small but good banks look for partners for merger.

Echoing Thanh's views, banking expert Nguyen Tri Hieu said small banks which as of now have no specific business strategy would find it difficult to compete against larger banks.

Most small banks were focusing on becoming leading retail banks with competitive interest rates, a strategy similar to that of large banks, Hieu said.

"Such a strategy, however, is advantageous for large banks, not small ones," he said.

"Therefore, small banks cannot survive unless they adopt specific business strategies or merge with another bank," Hieu said. — VNS

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