Mr. Tran Bac Ha, Chairman of the Bank for Investment and Development of Vietnam, spoke with VET about its recently-completed merger with the Mekong Housing Bank.
Preparations for the merger between the two banks were conducted over a period of just 55 days. It’s a huge task, so how did BIDV complete the merger one year ahead of schedule?
The two banks are governed by the State, which holds 95.76 per cent of BIDV and 91.26 per cent of MHB. The merger therefore has different characteristics than other mergers.
But we also had to complete more procedures than other mergers do. For example, there were 193 documents the Committee of Merger Management (which BIDV established) had to work on, including decisions, notices, official dispatches, and 60 other documents from both sides, for a total of nearly 250 documents and 2,000 pages.
In early May BIDV organized working groups and set up a committee to prepare for the handover process. From May 11 the two banks officially organized the handover, which merged MHB’s 44 branches and other units where it had investments. By May 22 MHB had concluded providing all of its data to BIDV and declared it was no longer a legal entity. On May 23 and 24 BIDV confirmed the system was operating smoothly and at 8am on May 25 the new entity officially came into being. Then we let out a collective “Phew!”.
Can you give us more details about the principles on which the merger was based?
With guidance from the government and the State Bank of Vietnam we merged under the following principles: keeping MHB in its original form as the merger proceeded; not performing any revaluations; implementing a share swap ratio of 1:1; maintaining the principles of control and preventing risks of losses during the merger process; and ensuring the operations of the banks during the process and post-merger.
We think these were appropriate principles because they were used in successful mergers such as that between SaiGonBank, FitcomBank, and TinNghiaBank, and the central bank recently accepted in-principle the merger of the Mekong Development Bank (MDB) and Maritime Bank under the same principles. They ensured that the merger was completed quickly and that non-State shareholders were not affected.
What was the most significant obstacle in the handover process?
The greatest obstacle was how to accurately assess the actual operations of MHB to ensure the handover was completed securely. We sent working groups to research all aspects of MHB and all its units, including those in which it had joint ventures or had made investments. Another difficulty was the limited time to ensure normal operations, but BIDV completed the merger as quickly as possible.
Assets and networks have now grown. What do you foresee for BIDV’s operations post-merger?
The scale of BIDV’s operations will be bigger, with total assets reaching over VND700 trillion ($32.08 billion) and total equity almost VND37 trillion ($1.69 billion), its network will expand to 980 locations (182 branches and 798 transaction points), and it will take on a new type of customer - small and medium-sized enterprises in many sectors throughout the country and especially in the Mekong Delta. In the Mekong Delta we will become more involved in the agriculture sector, focusing on large-scale livestock farming and cultivation technology from Israel and Japan, which MHB was previously involved in. We will also enhance our financial services for the agriculture sector.
Regarding our business plan, we have set targets for the 2015-2017 period for credit to increase by a minimum of 16 per cent per year, capital mobilization to increase 17 per cent per year, and lending to and deposits from customers to reach VND750 trillion - VND800 trillion ($34.38 billion - $36.67 billion) by the end of 2017, while strictly controlling credit quality to manage bad debts at less than 3 per cent. Profit before tax is to increase by an average of 16 per cent per year, to reach VND10 trillion ($458.40 million) by the end of 2017.
Some have said that the swap ratio of 1:1 between the two banks was to the detriment of individual BIDV shareholders. How would you comment?
We realize that immediate dilution will happen as the differences in the two banks’ market value and the trading price of BIDV shares and the unofficial shares of MHB (which was still in the process of finalizing procedures for listing). However, in the long term, we determined that the merger would benefit all shareholders. The merger aims for sustainable development and long-term operations post-merger based on strong advantages in networks, customers, and economies of scale, etc.
Shareholders should therefore believe that their interests, including dividends, will be guaranteed on the basis of effective operations after the merger. We expect the 2015 dividend payout ratio will be no less than 9 per cent.