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 Student’s name: Tran Thi Hoang Ha Student code: CQ 51 1154 Class: TCTT B Intake: 51 Supervisor: PhD Dang Ngoc Duc Internship guide: Ms Nikki Nguyen Hanoi, 2013 ACKNOWLEDGMENT 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 2|Page TABLE OF CONTENT 3|Page ABBREVIATION bn billion ml million M&A Merger and Acquisition HBB Hanoi Building Bank SBV State Bank of Vietnam SHB Saigon Hanoi Bank US$ US dollar VND Vietnamese dong 4|Page LIST OF FIGURE 5|Page LIST OF TABLE 6|Page CHAPTER INTRODUCTION 1.1 Rationale 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, 7|Page 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 Methodology 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 8|Page 1.3.2 Analysis methods In order to evaluate the significance of M&A related gains, the research follows two main approaches, namely: • 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 1.4.Research Scope 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 and HBB 1.5.Research Structure The research consists of 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 9|Page CHAPTER 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 separate companies 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 APPENDIX Appendix A: Summary of M&A deals in banking sector N o Year 2013 (expecte d) 2012 Target Acquirer Countr Company Company y Western Type hip acquired Vietnam Domest Bank PVFC HSBC %Owners n.a Value (Millio n USD) n.a ic Sumitomo Japan Inbound 18 340 Life 2012 Tienphong Insurance Doji Group 2012 Bank Vietcom Mizuho 2012 Bank Vietin Bank Tokyo Bank HBB SHB Mitsubishi 2011 Post Lien 10 2011 11 2011 Saving Vietinbank Anbinh Bank IFC IFC US US 12 2011 Bank Standard Maritime Vietnam Domest n.a 13 2011 Securities Bank Gia Dinh Ban Viet ic Vietnam Domest 30 n.a 14 2011 Bank Vietcom Mizuho 15 2011 Bank Vietin Nova Scotia Canada 2012 Vietnam Domest 20 n.a Japan ic Inbound 15 n.a Japan Inbound 20 743 Vietnam Domest ic Viet Vietnam Domest Japan n.a n.a 100 50 ic Inbound 10 Inbound 10 186 40.5 ic Inbound 15 567 Inbound 15 n.a 46 | P a g e 16 2011 Bank Laos Bank Vietin Bank Vietnam Outbou Developm 17 2011 20 2011 30 n.a n.a n.a nd ent Bank SCB Trust Bank Ficom Vietnam Domest ic Bank Kim Eng May Bank Malaysi Holdings a Inbound 44.6 Ltd Tienphong Dọi Group Bank Mekong Fullerton Singapo Inbound 15 Developm Financial re ent Bank Holdings 23 2010 VIB Bank Pte Ltd Commonwea Australi 24 2009 An 25 2009 Bank PIB 26 2009 Campuchia Bao Viet HSBC United Group Kingdo 22 2010 lth Bank Binh May Bank BIDV a Malaysi n.a n.a Inbound n.a Inbound 15 0.11 a Vietnam Outbou n.a nd Inbound n.a 105.3 m Appendix B: Descriptive statistic of the data before the merger 47 | P a g e count mean sample variance sample standard deviation minimum maximum range standard error of the mean skewness kurtosis coefficient of variation (CV) Correlation Matrix 48 | P a g e count mean sample variance sample standard deviation minimum maximum range skewness kurtosis coefficient of variation (CV) Correlation Matrix 49 | P a g e Appendix C: Descriptive Statistic of the data after the merger count mean sample variance sample standard deviation minimum maximum range standard error of the mean skewness kurtosis coefficient of variation (CV) Correlation Matrix 50 | P a g e count mean sample variance sample standard deviation minimum maximum range skewness kurtosis coefficient of variation (CV) Correlation Matrix 51 | P a g e Appendix D: Regression analysis Dependent Variable: DHBB Method: Least Squares Date: 05/26/13 Time: 14:06 Sample(adjusted): 2/01/2012 8/13/2012 Included observations: 139 after adjusting endpoints R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Dependent Variable: DHBB Method: Least Squares Date: 05/26/13 Time: 14:16 Sample(adjusted): 2/01/2012 8/13/2012 Included observations: 139 after adjusting endpoints R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat 52 | P a g e Dependent Variable: DSHB Method: Least Squares Date: 05/26/13 Time: 14:18 Sample(adjusted): 2/01/2012 8/13/2012 Included observations: 139 after adjusting endpoints R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Dependent Variable: DSHB Method: Least Squares Date: 05/26/13 Time: 14:35 Sample(adjusted): 8/17/2012 3/18/2013 Included observations: 152 after adjusting endpoints V R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat 53 | P a g e Appendix E: Summary of financial statement of SHB Total assets Total liability Total Equity Q4 2012 116,923,041 Q3 2012 Q2 2012 103,418,851,772,44 80,957,582,266,12 95,108,929,423,696 75,279,715,243,50 8,309,922,348,749 5,677,867,022,617 107,447,534,252,13 9,475,507,084,110 After tax profit Total assets Q1 2013 163,136 103,706,955,349,06 Total liability Total Equity Pass loan Special mention loan Substandard loan Doubtful loan Loss loan Total loan 94,048,032,350,164 2012 8,206 115,945,055 106,497,19 9,658,922,998,900 9,447,862 4,898,809,961,080 47,242,992 5,200,737,040,062 561,233,082,930 1,515,417,870,074 2,677,862,826,727 54,854,060,780,873 4,613,612 1,030,821 1,774,175 2,209,471 56,871,071 Q1 2012 74,344,743,183,92 68,251,140,635,55 6,093,602,548,367 2011 2010 735,462 487,875 70,962,79 51,013,86 65,158,10 46,837,05 5,804,694 27,413,61 4,176,806 23,363,66 1,093,638 218,922 154,148 278,343 29,158,66 596,555 36,159 39,376 265,396 24,301,15 54 | P a g e 55 | P a g e Appendix F: ROA ROE of Vietnam banking sector – source: SBV State owned commercial banks Joint stock commercial banks Venture banks, foreign banks Financial companies Other financial institution The whole system 56 | P a g e LIST OF REFERENCES Books, Thesis, Reports Business Monitor International, (2011), Commercial Banking report: Vietnam, Business Monitor International, London, England Corporate Insurance Team, (2012), M&A activity: A global overview 2009-2012, Clyde & Co Donald C Langevoort, Thomas Aquinas Reynolds, (2010), The Behavioral Economics of Mergers and Acquisitions, Georgetown University Law Center, Washington D.C, US Luong Minh Ha, (2010), M&A Activities in Finance and Banking Field in Vietnam, Banking Acedemy, Hanoi, Vietnam PwC, (2011), Vietnam M&A activity review – 2010, Hanoi, Vietnam Rym Ayadi, Georges Pujals, (2005), Banking Mergers and Acquisitions In The Eu: Overview, Assessment And Prospects, SUERF, Vienna, Austria Steven J Pilloff, Anthony M Santomero, (1996), The Value Effects of Bank Mergers and Acquisitions,The Wharton Financial Institutions Center, The Wharton School, University of Pennsylvania, Philadelphia, US Thuan Nguyen, Henry Hoan Tran, (2011), Vietnam Deals Review 2011, Stoxplus, Hanoi, Vietnam Thuan Nguyen, Henry Hoan Tran, (2012), Vietnam M&A research report: Opportunities and Distress, Companies and Increased Deals, Flow from Japan, Stoxplus, Hanoi, Vietnam 10 To Binh Quyen, Dang Thi Thanh Binh, Huynh Thi Dieu Linh, (2012), Vietnam Banking Sector Report, Phuong Nam Security Company, Hochiminh City, Vietnam 11 Vietnam Competition Authority, (2012), Vietnam Economy Report, Ministry of Industry and Trade, Hanoi, Vietnam 57 | P a g e Articles 12 Devra L Golbe, Lawrence J White, (1988), A Time-Series Analysis of Mergers and Acquisitions in the U.S Economy, Corporate Takeovers: Causes and Consequences, 265_ 310 13 Dimitrios Maditinos, Nikolaos Theriou, Efstathios Demetriades, (2009), The Effect of Mergers and Acquisitions on the Performance of Companies – The Greek Case of Ioniki-Laiki Bank and Pisteos Bank, European Research Studies, XII (2), 111_130 14 Jongsoo Choi and Jeffrey S Russell, (2004), Economic gains around mergers and acquisitions in the construction industry of the United States of America, Canadian Journal of Civil Engineering, 31, 513_525 15 Linh San, (2012), Targets sought, Vietnam Economics Times, (May 2012), 34_35 Websites 16 Wikipedia http://en.wikipedia.org/wiki/Mergers_and_acquisitions - accessed on 17/03/13 17 Investopedia http://www.investopedia.com/university/mergers/mergers1.asp - accessed on 19/03/13 18 Investopedia http://www.investopedia.com/university/mergers/mergers2.asp - accessed on 19/03/13 19 Wow! Zone http://awowzone.blogspot.com/2008/03/applying-porters-5-forces-modelto.html - accessed on 22/03/13 20 Tutor2u http://www.tutor2u.net/blog/index.php/business-studies/comments/the-main-motivesbehind-takeovers-and-mergers - accessed on 22/03/13 21 Vietnamnet http://english.vietnamnet.vn/fms/business/72610/m-a-in-banking-sector who-willbe-next-.html - accessed on 23/03/13 22 Saigon Hanoi Bank http://www.shb.com.vn/tabid/473/default.aspx - accessed on 12/04/13 23 COMMENTS 58 | P a g e 59 | P a g e INTERSHIP REPORT ASSESSMENT Signature of supervisor 60 | P a g e ... 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 Methodology... 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 9|Page CHAPTER THEORETICAL... 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