NATIONAL ECONOMICS UNIVERSITY
ADVANCED EDUCATIONAL PROGRAM
BACHELOR’S THESIS IN FINANCE
Vietnam Banking M&A evaluation
The Case study of The consolidation of
SHB and HBB
Tran Thi Hoang Ha
CQ 51 1154
PhD. Dang Ngoc Duc
Ms. Nikki Nguyen
I would like to express my gratitude to all those who gave me the possibility to complete
this thesis, everyone from I.P Communication company, Hanoi office. Especially, I want
send my sincerely thank to Ms. Nikki Nguyen– Head of Media Department at Hanoi
office for her great support as well as helpful advices that help me complete the research.
I am deeply indebted to my supervisor Dr. Dang Ngoc Duc from National Economics
University, whose help, stimulating suggestions and encouragement helped me in all the
time of internship and writing of this thesis.
TABLE OF CONTENT
Merger and Acquisition
Hanoi Building Bank
State Bank of Vietnam
Saigon Hanoi Bank
LIST OF FIGURE
LIST OF TABLE
Merger and Acquisition have long been the important strategies in banking sector to
achieve reduction of expenses, increase of market power, decrease of earning volatility
and scale and scope economies. In 1990s, the world witnessed a huge wave of banking
consolidation. For three year, from 1994 to 1996 alone, more than 1500 M&A cases had
happened in the US market. In 2000s, before the financial crisis, the banking consolidation
activities increase significantly in term of both number of cases occurred and the total
value of the deals. If 2007 represented the end of the bull market for banking M&A, 2008
and 2009, were defined by nationalized and rescue transactions. Affected by the financial
crisis, the M&A activity in banking sector have cooled, however, M&A remain to be the
vital tool for adaptation, retrenchment and reform.
In the last decade, Vietnam saw a dramatically development of banking system. However,
this development came mainly in the form of increasing number of banks but not in form
of the improvement in the system quality. Therefore, when the economy started to slow
down and then went into the depression phrase, the system was under the pressure of
restructuring and strengthening. M&A has become critical solution for Vietnamese banks’
difficulties at this stage. From several cases in 2009, the M&A activities have become a
wave in 2011 and 2012 with the participation of domestics as well as foreign parties. To
some degree, these consolidations have impact on the whole banking system as well as the
operation of each bank. However, the effects are unclear and the change in the banks’
performance due to this phenomenon is also not satisfied addressed. Answering the
question about how M&A will affect the operation of the banks is important to evaluate its
influence on the restructuring process of Vietnamese baking system.
Despite of being cited for strong synergy on the operation of the banks, many studies have
found that M&As are far from having proved their economic effectiveness. Therefore,
there is a need for practical evidence to prove the positive effects on banking performance,
including profitability and efficiency.
Aware of these facts, I have selected the topic of “Vietnam banking M&A evaluation Case study: Consolidation of SHB and HBB” for my graduation thesis.
1.2. Research objectives
The extent to which the M&A transactions have a significant impact on the performance
of the banks, it’s necessary to undercover the underlying mechanisms and consequences of
M&A transactions. Specially, throughout the investigation, the purpose of the research
effort was to achieve the following objectives:
To gain knowledge about M&A activities and related theories or concepts.
To provide general insight of the M&A activities in banking sector.
To draw conclusion about the current status of banking M&A in Vietnam
To clarify the effects of M&A on the performance of the banks, through analyzing
the case of SHB and HBB consolidation..
1.3.1. Data used in the research
The data employed in the research are from the following two main sources.
Primary data: stock prices of SHB and HBB from March 2012 to March 2013;
financial statements of SHB and HBB before and after the merger.
• Secondary data: research and paper on M&A, banking M&A in the world and
recent trend of banking M&A in Vietnam
1.3.2. Analysis methods
In order to evaluate the significance of M&A related gains, the research follows two main
Stock price performance analysis
By running regression model based on CAPM model, the analysis is aimed to estimate the
beta risk coefficient of the stocks before and after the merger.
Balance sheet ratio analysis
This method compares the pre-merger and post-merger performance of banks using
accounting data to determine whether consolidation leads to changes in reported costs,
revenue and profit figures as well as other financial ratio.
The research is concentrated to the theoretical background of M&A especially in banking
sector and the information related to recent M&A cases in Vietnam banking sector. In
addition, the analysis of M&A effects on banks’ operation is limited to the case of SHB
The research consists of 4 chapters:
Chapter 1: Introduction
Chapter 2: Theoretical background of banking merger and acquisition
Chapter 3: Study of recent merger and acquisition wave in Vietnam banking sector
Chapter 4: Case study of SHB and HBB: the effect of merger and acquisition on the
performance of the two banks
THEORETICAL BACKGROUND OF BANKING
MERGER AND ACQUISITIONS
2.1.Merger and acquisition definitions and related concepts
2.1.1. The main idea of merger and acquisition
Merger and acquisition (M&A) is an aspect of corporate strategy, corporate finance and
management dealing with the buying, selling, dividing and combining of different
companies and similar entities that can help an enterprise grow rapidly in its sector or
location of origin, or a new field or new location, without creating a subsidiary, other child
entity or using a joint venture.
The key principle behind buying a company is to create shareholder value over and above
that of the sum of the two companies. On the other words, the main idea behind MM&A is
one plus one is more than two. Two companies together are more valuable than two
This rationale is particularly promising to companies when the economics conditions are
hard. Strong companies will act to buy other companies to create a more competitive,
cost-efficient company. The companies will come together hoping to gain a greater market
share or to achieve greater efficiency. Because of these potential benefits, target
companies will often agree to be purchased when they know they cannot survive alone.
2.1.2. Merger and Acquisition definition and distinction
The difference between a merger and an acquisition has become less obvious in various
perspectives, especially in terms of the final economic outcome; however, it has not
disappeared completely in every situation.
An acquisition or takeover is defined as the purchase of one business or company by
another company or other business entity. This purchase may be in form of 100 percent or
10 | P a g e
nearly 100 percent of the assets or ownership equity of the acquired entity. This process
could be viewed as the target company ceases to exist, the buyer "swallows" the business
and the buyer's stock continues to be traded. The buyer is called acquiror while the target
company is the acquiree.
As its original meaning, a Merger or consolidation happens when two companies join
together and form a new enterprise altogether, and none of the previous companies exist
independently after the deal occurs. Both companies' stocks are surrendered and newly
established company then issues its stock in the market replace the two previous.
MERGER AND ACQUISITION DISTINCTION
In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm
to proclaim that the action is a merger of equals, even if it's technically an acquisition.
Being bought out often carries negative connotations, therefore, by describing the deal as
a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together
is in the best interest of both of their companies. But when the deal is unfriendly - that is,
when the target company does not want to be purchased - it is always regarded as an
Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.
11 | P a g e
2.1.3. Synergy definition and forms
Synergy is a term that is most commonly used in the context of mergers and acquisitions.
It is the concept that the value and performance of two companies combined will be
greater than the sum of the separate individual parts. Synergy, or the potential financial
benefit achieved through the combining of companies, is often a driving force behind
M&A transaction. Shareholders will benefit if a company's post-merger share price
increases due to the synergistic effect of the deal.
Synergy takes the form of revenue enhancement and cost savings. By merging, the
companies hope to benefit from the following:
Staff reductions – Following a merger or an acquisition is generally a cut in
human resources. This may make companies become more efficient and save a lot
of money from reducing the number of staff members from accounting, marketing
and other departments.
Economies of scale - As become bigger after the M&A deal, the company would
gain more negotiation power over their customers as well as their supplier or
Acquiring new technology - To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
Improved market reach and industry visibility - Companies buy companies to
reach new markets and grow revenues and earnings.
M&A may help two
companies to expand marketing and distribution, giving them new sales
opportunities. M&A can also improve a company's standing in the investment
12 | P a g e
community: bigger firms often have an easier time raising capital than smaller
13 | P a g e
2.1.4. Merger and Acquisition classification
18.104.22.168. Merger variations
From the business structures point of view, mergers could be classified in to several
different types. There following presents common type of merger and their distinctions.
Horizontal and vertical merger
Horizontal merger is when two companies are in direct competition and share the same
product lines and markets.
Vertical merger happens when a company mergers with its customer or supplier
Market-extension and product-extension merger
Market-extension merger is the case when two involving companies sell the same
products in different markets.
Product-extension merger, on the other hand, is the merger happens between two
companies selling different but related products in the same market.
A merger is classified in to this category when two related companies have no common
Purchase merger and consolidation merger
These are two types of mergers that are distinguished by how the merger is financed.
Purchase merger occurs when one company purchases another. The purchase is made with
cash or through the issue of some kind of debt instrument.
14 | P a g e
Consolidation merger is the type in which a brand new company is formed and both
companies are bought and combined under the new entity.
22.214.171.124. Acquisition variations
Private and public acquisition
Acquisitions are divided into private and public acquisitions, depending on whether the
target company is or is not listed on a public stock market.
Friendly and hostile acquisition
An additional dimension or categorization consists of whether an acquisition is friendly or
hostile. Whether a purchase is perceived as being a friendly one or a hostile depends
significantly on how the proposed acquisition is communicated to and perceived by the
target company's board of directors, employees and shareholders.
In the case of a friendly transaction, the companies cooperate in negotiations.
In the case of a hostile deal, the board and/or management of the target are unwilling to be
bought or the target's board has no prior knowledge of the offer.
Hostile acquisitions can, and often do, ultimately become "friendly", as the acquiror
secures endorsement of the transaction from the board of the acquiree company. This
usually requires an improvement in the terms of the offer and/or through negotiation.
Reverse takeover and reverse merger
While acquisition usually refers to a purchase of a smaller firm by a larger one, reverse
takeover is the case when a smaller firm will acquire management control of a larger
and/or longer-established company and retain the name of the latter for the postacquisition combined entity.
15 | P a g e
Reverse merger occurs when a privately held company buys a publicly listed shell
company, usually one with no business and limited assets. This form of transaction
enables a private company to be publicly listed in a relatively short time frame.
126.96.36.199. Other classification of Merger & Acquisition
In the content of cross-border transactions, M&A can be classified by the original
countries of the two involved companies into three types, namely: domestic, inbound and
Domestic M&A deals happen when both companies are from the same country.
Inbound transaction is the case in which a foreign company acquires a domestic company.
On the other hand, when a domestic company buys a foreign company, it is called
2.2. Reasons for merger and acquisition activities in banking sector
2.2.1. Banking sector Porter Five Forces analysis
To understand the reason behind the M&A activities in banking industry, first of all the
nature of competition in this industry must be analyzed. It is safe to say that, banking
sector is among the most competitive field. This would be much clearer by applying
Porter's 5 Forces Model in this industry.
16 | P a g e
Industry Rivalry - High
Suppliers - High
Subtitutes - Moderate
Potential Entrances - Low
Customers - High
Figure 2.1: Banking sector Porter Five Forces analysis
Force 1: Threats from new or potential competitors: LOW
This might be the only force that is low in banking industry. Since, the bank establishment
requires a lot of resources and follows a complicated procedure with the approval of the
central bank. It is not likely that a new comer will enter the market, especially when the
economics conditions are hard. In short, the barrier to entry of banking sectors is high.
Therefore to certain degree eliminate the competition from potential entrances.
Force 2: The intensity of competition among existing firms: HIGH
Except for control economy, in a free market commercial banks are competing very
intensively. Banks are branching everywhere and offering various incentives to its
customers. In some cases, bankers are required to open certain account every month. This
makes the competition very fierce.
17 | P a g e
Force 3: The power of the suppliers: HIGH
In their basic nature, banks are dealing with money. Only central bank can control the
money supply, as the result, it is safe to say that banking industry has a monopoly supplier.
The central banks in every country have the ultimate control over the money circulated in
the system. This means that the central banks, like Fed or SBV, have tremendous effect on
the whole industry.
Force 4: The power of the customers: HIGH
The customers can easily choose a bank within a while range of banks. And if the
customers do not like anything of their banks, they can open accounts in another bank,
which it won't take more than 30 minutes. This is why customer service is becoming so
important in this industry. In short customers can create very strong force of competition
toward the banks.
Force 5: The easiness of changing to substitute products: MEDIUM
In term of investment vehicles, banking products have various substitutes such as bonds,
mutual funds, stocks, etc. However, in term of payment, the power of banks’ services is
undeniable. All the paychecks, payments go through some banks to clear. The economy
will be shut down if there is no bank to execute the payments.
According to the analysis of Porter's Five Forces Model, banking industry’s competition is
unfavorable and fierce since most of the forces scored high. It’s hard for a bank to expand
the operation and increase the market share. Therefore, M&A is an alluring strategy for
banks to achieve the development.
18 | P a g e
2.2.2. Motive of banking merger and acquisition
Concerning bank’s incentives to take an active part in consolidation, two often cited as
primary factors are revenue enhancement and cost savings.
Revenue enhancement through M&A could come through the forms of economies of scale
and (geographic) scope and increase in market power.
Revenue economies of scale and (geographic) scope
Revenue economies of geographic scope therefore arise in the sense, that firms might be
willing to pay premier for a bank’s services if the same bank can provide services to the
firm in other regions of operation.
Special to universal banks providing a large variety of financial services, scope economies
could be at hand through consumers’ willingness to pay a premium for one-stop shopping,
maybe also driven by the consumer’s unwillingness to share his private information with
more than one financial institution , and through ”‘reputation economies”’. The latter may
arise if a universal bank is able to transfer its superior reputation in one banking service to
another by collective branding.
However there might also be diseconomies of scope in the banking industry, arising from
less specialization leading to less tailor-made products and therefore lower prices
chargeable, or due to customer worries that combining services might lead to conflicts of
interest within the bank .
Increase in market power
In general, the market level price effect of M&A depends on the induced increase in local
market concentration and the general demand structure. Domestic M&As in small
markets, with the demand side having few outside options (e.g. small businesses who
19 | P a g e
seem to strongly depend on local banks for financing) could most probably enable a
consolidating institution to charge higher prices from their customers through e.g. lower
deposit rates and higher small business loan rates. Banks tend to have better and more
permanent margins in more concentrated markets.
Possible cost savings theoretically arise through three dimensions: economies of scale,
economies of scope and increase in Cost X-Eﬃciency.
Cost economies of scale
Scale is often mentioned as an important means of reducing average costs in the banking
industry. Due to both technological process such as Automated Teller machines - ATMs,
Internet Banking, Risk Management IT as well as new dimensions of financial
engineering (for example, international placement of bonds, etc) larger scale economies
may have arisen.
In retail banking, the emergence of internet banking is perfect example for conducting
banking services with high fixed costs (such as the development of the portal) and low
variable costs due to less staffing required per transaction. Other possible sources of cost
scale economies are call centers and payment processing.
However, small banks could probably achieve the same degree of efficient by outsourcing
parts of these processes or building networks. If banks in general outsource the parts of
their value chain, that feature cost economies of scale, such efficiency related to the size of
the respective bank may vanish.
20 | P a g e
Cost economies of scope
Theoretically there are two main contradicting arguments concerning cost economies of
scope in the banking sector. On the one hand re-usability of customer information for
many products may lead to scope efficiency. On the other hand a shift away from core
competencies always may lead to additional administrative costs as well as foregone cost
reductions along the learning curve.
Improvements in X-efficiency through M&A can be achieved, if the acquiring bank has
superior managerial skill or organizational practice which spills over to the target bank It
is believe that X-efficiency can significantly be raised if inefficient targets are restructured
by X-efficient acquirers.
2.3. Approach to evaluate the merger and acquisition effects toward banks’
Most studies about the effect of M&A on the performance of banks use one of two
following approach to estimate the significant of gain and after-merger performance
related to the consolidation.
In the first approach, accounting data of the periods before and after the merger are used to
determine whether there is any change in the cost, revenue or profit figures due to the
merger of the two banks. The advantages of this method are that the accounting data are
easily to obtain, the procedure are straightforward and the result are well understood. In
the analysis data from both pre-merger and post merger are used to evaluate the change in
the performance caused by the merger activity. Advocate of this approach argue that
accounting data reflect the actual condition of the banks rather than the expectations of the
investors, therefore they are more accurate than the stock price performance. However,
studies based on accounting data contain several deficiencies. First of all, although
accounting data provide information about actual performance, they may be not very
21 | P a g e
useful in term of economic sense. Accounting data consist of historical figures and often
omit current market values. Secondly, the changes in the performance of the banks during
the investigated period between the pre-merger and post-merger time may due to more
than just merger related causes. Other events may have happened during that period and
been more appropriate reasons for the performance changes. Failing to address these
important events may cause improper judgment about the effects of the consolidation to
the performance of the banks.
The second approach uses data in the stock market to evaluate the market reaction to the
merger event and to estimate the merger gains for the stock of the related banks.
Advocates of this method state that, stock prices are more accurate to measure the value
created due to the merger of two independent entities. They argue that data used in this
method reflect the current market condition, rather than accounting figures of history. The
abnormal return of the two entities are often analyzed separately, however, the total
change in shareholder wealth is also reported in several papers. Nevertheless, this
approach is not perfect. Opponents of this method mostly criticize it for the timing of the
analysis. Studies of abnormal returns, which used stock market data, have overcome the
disadvantage of potentially misleading accounting data, but most studies focus only on a
short period around the merger announcement. The analysis, therefore, reflects sorely the
investors’ expectation of unrealized events. The analysis using data from post-merger
period contains its own disadvantages. The conclusion based on the study of abnormal
return with the data extend to after-merger period is unclear. The abnormal return in this
period may due to other causes rather than merger-related factors. What event period is
most accurate for the analysis is still unclear in all the studies. The questions of how many
days before the announcement are appropriate to evaluate the information leakage and
how many days after the announcement are necessary to allow the market to fully reflect
the effects of information about the proposed transaction to the trading of the stocks have
not yet been answered. The selection of the period under investigation is important, since
it may significantly influence the result.
22 | P a g e
Recently, studies about the effect of merger on the performance of the related banks have
followed the third approach which uses both basic methods. These papers not only analyze
the relationship between mergers activity and changes in accounting figures, but also stock
market returns. Furthermore, these studies take into account the correlation between
changes in accounting data and abnormal returns.
23 | P a g e
THE RECENTLY WAVE OF BANKING MERGER
AND ACQUISITION IN VIETNAM
3.1. Summary of banking merger and acquisition in Vietnam
After a booming period of the bank establishments in Vietnam with the number of joint
stock commercial bank reached 43, it is now the time for the system to be restructured to
be more stable and safe for the long run development.
The aggressive restructuring program monitored by the Government has immediate
impact on the system. In the very first stage, the number of commercial banks in Vietnam
had been reduced from 43 to 41 following a consolidation of three troubled banks: Saigon
Commercial Bank, Tin Nghia Bank and First Commercial bank. By December 31, 2012,
there are 37 joint stock commercial banks operating in Vietnam. This is SBV’s strategy to
reduce the number of commercial banks to just about 13-15 by 2015. The Government
even provides open opportunities for foreign investors to acquire controlling interest at the
10 weak banks classified in Group 4 “Weak Bank”.
Other two noticeable M&A cases in banking sector are the merge of Saigon Hanoi Bank
(SHB) and Hanoi Building Bank (HBB) and the acquisition of 65% stake in Sacombank
(STB) by a group of local investors led by Eximbank. For the first case, which is in form
of shares conversion, it will be discussed in much detail in the later part of the thesis. The
second is a noticeable hostile takeover which the buyers spent as high as US$500 ml. to
obtain 65% stake in this US$700 ml. net asset bank.
24 | P a g e
3.2. Factors enhancing banking merger and acquisition activities in
3.2.1. Outside the banks
Increasing involvement of foreign parties in banking sector
The increasing involvement of foreign parties in Vietnam is a critical factor causing
competitive pressure toward the domestic banks. More and more foreign banks and
financial institutions have entered and expand their present in Vietnam. This trend has
created many difficulties for Vietnamese banks.
According to the statistic of SBV, by December 31, 2012, there are 50 branches of foreign
banks, 4 venture banks, 5 – 100% foreign capital banks and 49 representatives of foreign
banks in Vietnam. With strong resources like capital, experience and technology from the
foreign finance entities, these parties have important competition advantages to increase
their market share in Vietnam.
ANZ, HSBC and Standard and Charter are perfect
examples for the successful brands in the world have established strong present in
Vietnam financial market.
Deregulation is another important factor contributing to the expanding operation of
foreign banks in Vietnam.
In accordance with the schedule for WTO, Vietnam
government has gradually removed their protection for the domestic parties, creating more
It is undeniable that the operation of these foreign related entities will cause challenge for
Vietnam domestic commercial banks. This intense competition has made small and weak
banks to be acquired by the larger and stronger banks or to merger together to have more
resources and power over the market.
25 | P a g e