The Case of Banking Industry in Vietnam

Employee Layoffs after M&A:

The case of banking industry in Vietnam

Lecturer: Dr. Bahaudin G. Mujtaba

           Research Team: Vo Thanh Tung- MBA 29152243

                     Nguyen Dang Quang - MBA 29152204

                 Vu Nhat Linh - MBA29151205

                 Tran Thi Thu Hien - MBA 29152245

                                                     Ngo Thi Muoi - MBA29151147        

Abstract

This study evaluated the consequences of Merger and Acquisition (M&A) in Banking sector to employees in Vietnam. The objective was to identify the impacts of layoffs on employees and company in the particular case of Mr. Mai Phuoc Tien is an victim of the M&A process in Viet Capital Bank in Vietnam. This research aims to show the differences between the treatment of company to employees and the law to be issued by government, negative influences on employee, cost-benefits of company in layoffs and attempt to solve the problem using management practice.

Keywords: Merger and Acquisition, layoff, Banking, Consolidation.

Vietnam Banking Industry Overview

According to the law 10/2011/ND-CP, released on 26 January 2011, the commercial bank has to raise their owner capital to 3,000 billion VND. When increasing chartered capital, the bank has to frantically looking for customer’s loans (An, 2012), which is considered challenging because key accounts have already been acquired by market leaders. Thus, merging are inevitable step of the process in restructuring that small banks must take into account to develop and maintain their bank.  

According to Lan (2014), Small banks really need a merger to resolve the financial weakness. Some experts acknowledge cite in Lan’s Article states that the idea of merger in this time is reasonable because this is a good way to help smaller banker the internal problem like lack of owner capital and poor asset quality. During this merging process, a huge challenge to the big bank is that they have to solve the bad debts from the smaller bank. However, when the big bank intend to mergers, they will carefully calculated to ensure the rights and safety for themselves. Lan (2014) references the quote from the finance expert Mr Truong Van Phuong, who is director of Eximbank A small bank with high bad debt, the merger will have a different pricing.

A director of the bank has basically succeeded in restructuring states that the biggest target of the big bank is create a larger bank with many branches in many locations throughout the country to compete with others bank in the area. Therefore, the participation of the big bank like Vietcombank and Vietinbank in the merger recently is understandable.

A bright future for both big bank and small bank Ha (2015) claims that most of the bank has reveal plans to merge have the optimism. Vietinbank forecast that their total asset increased by over 25 billion; increase owner capital of 3,000 billion to 40,000 billion. Going along with the capital increase, branches of Vietinbank expanded in this new context when the State Bank was tightened. Thus, VietinBank may exploit the network of Petrolimex and financial services bundled, promoting financial services from the customers of Petrolimex. PGBank also optimistic and positive, according to the scheme following the merger, the merged bank will be stronger. For practical purposes, though PGBank bank is small, but the product portfolio is diverse, so after the merger will be more diverse product.

Better explanation for the benefits that the Bank receives, Tran Bac Ha, who is director of BIDV said the strategy of the Bank in the coming period is to promote agricultural credit and rural areas, especially in the Mekong Delta. Currently the Bank has stepped up lending to the farming sector, by concentrating on high-tech applications for cows, beef cattle, dairy cattle, breeding pigs, sows ... application of Israeli technology in farming. Therefore, the merger with MHB will expand the field of BIDV loans to rural agriculture and increase resources for rural credit of the Bank. On the other hand, MHB Bank also focused on the retail segment, according to Ha (2015), that's a suitable complement to the development objectives of the Bank.

Likely the trends of the bank recently, The Chairman of Viet Capital bank said the consolidation, merger or transformation of legal form will be made on the basis of the best interest of shareholders (Viet Capital Bank, 2012).

According to new information received from Viet Capital Bank (Viet Capital Bank, 2013), besides the consolidation, merger or transformation of legal form, the bank also acquired subsidiaries, associated companies to perform business activities.

The Case of Mr. Tien and Viet Capital Bank

Viet Capital Bank is a highly trusted private bank in Vietnam. On June 2015, their capital have reached approximately 3,000 billion VND and being considered as a healthy bank with only 3.8% bad debt in total loans (State Bank of Vietnam, 2014). Viet Capital was first established in Ho Chi Minh City in 1992 with the name “Gia Dinh Bank”. Until 2012 after being merged with small financial funding organizations, it was officially registered under the name “Viet Capital Bank” (Viet Capital Bank, 2012). During this time, it has experienced enormous restructuring in almost every department due to the merging activities.

On June 4th 2015, TuoiTreNews – an official and respected newspaper in Vietnam published the case of Mr. Mai Phuoc Tien (ex-employee) who is trying to sue Viet Capital Bank for illegal layoff. From 24th December, 2012, he signed the labor contract in 3 years period (2012-2015) for marketing staff position in headquarter. During this period, he always completed his tasks and did not violate company’s policies or received any detention. Mr. Tien even received salary rise on February 2013. However, on 24th December, 2013, as the results from merging activities, his Marketing Department was restructured and changed to General Marketing and Public Relations Department, Mr. Tien’s position was also changed to Event Staff. Few months later, he was moved again to Human Resource Department for the position called “Awaited Staff” who is waiting to be assigned suitable job. According to Mr. Tien, he was in this position in 6 months continuously (from May 2014 to November 2014) without any equipment or assignment. Eventually, on November 18th 2014, the company terminated his contract earlier for the reason “company restructuring and there is no suitable position for Mr. Tien”, which all of sudden caused him to lose his job. After the case of Mr. Tien has been published, several voices have risen to denounce either direct or indirect methods of employers to force employee leaving their job. Surprisingly, this phenomenon has become popular even for top manager levels (Education News, 2015). Furthermore, according to the State Bank’s governor (2015), government are planning to reduce significantly numbers of small private banks in the market. As the results, there is rising concern about M&A activities as well as its impacts on labor rights.